How often are?

Question

How often are investors using "no closing costs" refinances?

Doug Smith · Answer

If you peel back the curtain, there is no such thing as "no closing costs". Lenders simply bump up the rate to get cash back on the deal that they pass on as a "lender credit" to the borrower. It still costs money to refinance...taxes, title fees, etc...we can just raise the rate to get a lender credit back to the customer.

Anthony Freeman · Answer

That makes perfect sense.

You may go into an acquisition thinking you are able to purchase 20% equity but end up with only about 17% due to rolling closing costs into your loan. (Closing costs may catch some people off guard)

Andrew Postell · Answer

@Anthony Freeman unfortunately, it doesn't work that way.  When we purchase we are required to have a certain "loan to value" (LTV) in a property. Meaning, if I am putting down 5%....that's because my LTV requirement is 95%.  So, I cannot roll anything into the loan...since I'm already at the max LTV.  This is how purchases are usually structured.

However, when I refinance, I should have some equity in the property when I refinance.  For example, I've owned the home for 5 years and over that 5 year period the property grew in value $20,000.  That $20,000 is the ADDITIONAL equity that I have.  I can use that equity to roll in the closing costs when I refinance.

Hope that makes sense.

Anthony Freeman · Answer

How about during the initial acquisition? Same process, closing costs get rolled into the loan occasionally?

Andrew Postell · Answer

@Anthony Freeman yeah, the above post is right on.  There's always a cost.  Now, you may not pay it yourself...meaning, the equity in your property might pay it.  And that's how we usually do it. Meaning, having equity in a property is nice...but it can't buy me groceries and it can fill up my tank with gas...but when I refinance the equity in the property can be used to pay the closing costs.  We "roll in" the closing costs.  That's how it normally goes.

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