While lenders don’t usually pay for your closing costs, you can sometimes get a no-closing-cost mortgage.
With a no-closing-cost mortgage, your lender pays closing costs up front. Ultimately, though, you’ll end up repaying your lender for those closing costs. You’ll pay through either a higher interest rate or by taking out a larger loan.
No-closing-cost mortgages can help you afford to buy a house―even if you don’t have lots of cash on hand. But in the long run, you’ll end up paying more for a no-closing cost mortgage. Use this guide to lender-paid closing costs to decide if a no-closing-cost mortgage is worth it for you.
What is a no-closing-cost mortgage?
A no-closing-cost mortgage means that you, the home buyer, don’t pay any upfront closing costs on your new house. Instead, your lender will cover some or all of your closing fees.
No-closing-cost mortgages work in one of two ways:
1. You buy lender credits by paying a higher interest rate on your mortgage. Lender credits are basically the reverse of mortgage points. So instead of paying more upfront to get a lower interest rate, you agree to a higher interest rate and pay less at closing. This will give you a higher monthly payment and total loan repayment amount.
2. You take out a larger loan and roll closing costs into your mortgage. This shouldn’t affect your interest rate, but it will still affect your monthly payments and overall repayment amount.
With either method, your lender pays closing costs―but you end up with a higher loan payment each month. You’ll also pay more in interest over the course of your loan term.
» LEARN: Does APR include closing costs?
⚡ Fast facts: Some quick general closing costs questions
Home buyer closing costs usually range from 3–5%. (And as a home buyer, you don’t have to worry about real estate agent commissions.)
Home sellers should expect to pay 1–3% in closing costs. That doesn’t include real estate commission fees, though. Sellers generally pay another 5–6% of the home sale price in realtor commission at closing.
Closing costs include all kinds of fees, like loan fees, taxes, and other transaction-related costs.
Your exact closing fees will depend on your location, sales contract, and other factors. But typically, you can expect buyer and seller closing costs to cover the following fees:
Closing costs cover all kinds of fees for your home purchase. Your closing costs will take care of important things like legal fees, property taxes, and more. Plus, your closing costs will help pay for things you probably care about―like a home appraisal and inspection.
If you can’t afford closing costs, you can try to get someone else to cover them for you. You can ask your lender for a no-closing-cost mortgage, for instance. Or you can ask the home seller to help with closing costs. You can also look into home buyer rebates to save thousands at closing.
Your other option? Save up. Lender-paid closing costs or seller assists can end up costing you a lot more in the long term. So if you can save up enough to pay for closing costs, you might find the savings are worth the wait—especially if you plan on staying in your home for a while.
Is a no-closing-cost mortgage a good idea?
A no-closing-cost mortgage can be a good idea, but it really depends on your situation and needs.
On the plus side, lender-paid closing costs let you take money you would have put toward closing costs and put it toward your down payment instead―giving you a bigger down payment. Or it can help you buy a house even if you don’t have much cash on hand.
But buying lender credits or a higher loan amount to cover closing costs will both increase your monthly payment and the total amount of interest you pay.
For example, assume you have a $200,000 30-year mortgage. The table below shows how your interest rate could buy lender credits to cover closing. You can also see how that might affect your monthly payment and the amount of interest you pay over 30 years.
Total interest paid
That said, if you plan to move in just a few years, the effect on your overall interest amount won’t be as big. So a no-closing-cost mortgage tends to work better for a house you plan to sell in a couple years than a home you plan to stay in forever.
How do I get a no-closing-cost mortgage?
If you want a no-closing-cost mortgage, look for a lender that offers them. Not all lenders will pay closing costs―even in exchange for higher interest rates―so you’ll need to shop around for ones that do.
You’ll also need to meet typical loan requirements. A lender is much more likely to pay your closing costs if you have a good credit score and a strong credit history.
More ways to lower your closing costs
There are a few different ways you may be able to lower your closing costs:
- Shop around for lenders. Some lenders offer cheaper closing costs than others, so you can try to find a lower cost option. You can also ask your lender to lower or waive their lending fees (a part of closing costs).
- Make at least a 20% down payment, if possible. That way, you won’t have to worry about paying private mortgage insurance (PMI) costs as part of closing and you’ll have a lower monthly payment.
- Look for grants to help first-time home buyers. Many of these programs help cover closing costs for new homebuyers.
Can I get the seller to pay my closing costs?
You can try to get the seller to pay your closing costs through a seller assist. Just don’t count on the seller agreeing to it. In a hot market, most sellers won’t want to assist.
A motivated seller is more likely to help with closing costs. Keep in mind, though, that sellers will usually raise the sales price of the home to make up for your closing costs. So in the end, you’ll take out a bigger loan and end up paying more interest―just like you would with lender-paid closing costs.
FAQ about lender-paid closing costs
Yes, closing costs can be rolled into a mortgage. Rolling closing costs into a mortgage will lower the amount you have to pay at closing―but watch out for higher monthly payments and more interest paid over time.
A lender credit allows a lender to cover your closing costs as a home buyer. You buy lender credits by accepting a higher interest rate than what you initially qualified for. For example, you might agree to pay 4.5% interest to pay fewer closing costs instead of paying 4% interest and all closing costs.
Home buyers pay most of the closing costs. Buyers tend to pay 5–6% of the home price in closing costs, while sellers pay just 1% or 2%. (Sellers do have to pay 5–6% in real estate commissions at closing though.)
Lender-paid expenses refer to any costs your lender pays during your home purchase. These include expenses like legal fees and title fees. You will ultimately pay these expenses through your closing costs.