Though many lenders advertise some pretty
incredible claims, no closing cost home equity loans
really do exist. But how can there be a loan without
closing costs? Take a look at some facts – and
some myths – about no closing cost home equity
loans.
Closing costs are any fees associated with obtaining
(and closing) on a loan. The amount and type of closing
costs vary from lender to lender and depend on the type
and amount of the loan. Some costs commonly associated
with closing include credit checks, appraisals, title
searches and surveys (usually only in the case of rural
property). Points and lender fees may also be attached.
So why would you pay those costs when taking out your
original mortgage but not when taking out a home equity
loan?
If you’ve been making regular monthly payments
on a mortgage, you have demonstrated the ability and
willingness to meet the terms of your mortgage. In other
words, you’ve proven that you’re a good
risk. This fact alone may open doors for your home equity
loan that were closed when you were seeking a mortgage,
but it may also make it less costly to take out a home
equity loan. Lenders may not need to run a credit check
because you’ve proven yourself a good risk.
The appraisal is another cost that may be required
for home loans, but not for home equity loans. The guidelines
vary from lender to lender, but most will accept an
appraisal that was prepared by a licensed appraiser
sometime in the past two or three years. In most areas,
property values are fairly stable and there won’t
be significant decreases in market value over the course
of a mere two or three years. That appraisal amount
probably won’t change much even if a new appraisal
is conducted. If you’ve done renovations, added
rooms or made major changes, it could be in your best
interest to ask for an appraisal, even if one isn’t
required. It could increase the amount of equity you
have available.
If the property isn’t changing hands, there won’t
be a need for a title search to be sure the property
is clear of liens – that was done when you purchased
the property.
That doesn’t mean that every lender is going
to offer home equity loans with no closing costs. The
best way to be sure that you’re entering into
a loan that truly requires no closing costs is to ask.
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