Will Foster

Are you looking for a ZERO COST refinance on your home? Think again, here’s why.

Let me be candid right off the bat about “no-cost refinancing." Before I lead you any further down the dream-like path of no-cost refinancing we need to get one thing straight; It does not exist. What they call no-cost financing is in truth “normal full cost” refinancing that is in reality “no-money-out-of-your-pocket-refinancing.”

In this article, I’m going to debunk the myth of the ZERO COST refinance, explain to you what is really being offered and show you the different options available under this umbrella so you can make an informed decision about which option is best suited to you.

The myth of the ZERO COST refi is really nothing more than a marketing ploy designed to get prospects excited enough to pick up the phone and call a lender. Whether you find this marketing tool unethical or not, it does work and has been used quite effectively for a while now.

The truth of the matter is, there are ALWAYS hard costs involved when refinancing a home and they do not simply go away under a ZERO COST refi. What this should be called is the NO CASH OUT OF YOUR POCKET refi because that’s a much better way of describing what is going on here. Let me explain…

Whenever you refinance, there are always charges that are simply part of the process. Everything from the appraisal, pulling credit reports, lender and bank fees, the search for the title, title insurance as well as good old Uncle Sam, and at some point, the person doing the refi expects to get paid.

You’ll also need to set up an escrow account that is new for your taxes and insurance and put in two months’ worth of payments to start. Yes, you get the money back at the end but until then (many years from now most likely) you have to produce the money upfront.

As I stated earlier, there really is no such refinance that I have ever heard of that doesn’t accrue these charges. These costs do not just disappear on a no-cost refinance (wouldn’t it be nice if they did)...they are simply hidden.

Don’t worry; I can hear you asking the inevitable question I've heard many times before; “So if refinancing has all these fees, how can lenders offer so-called “no-cost-refinancing?”

Well, as explained they really don’t.  What they actually offer is “no-cash-out-of-your-pocket-refinancing,” and there are two kinds of those.

Here is an in-depth article about how to judge if a no out of pocket cost refinance loan is for you:

https://www.bankrate.com/finance/mortgages/is-no-closing-cost-mortgage-for-you.aspx

The most used form of “no-cost” refinancing is where they add all of the costs to the loan amount. That's right, costs for closing, taxes, and escrows for insurance are added to your current mortgage owed a balance and then they increase the size of the mortgage to cover these costs. This may not seem like what you intended when you started looking for refinancing but over time, this has still proven to be an option that gets the desired results for most clients.

Now let's say you have a $250,000 30-year mortgage and a 5.50% interest rate by paying $1,420/month and you want to lower your monthly payment. If you get into a new 30-year mortgage for $255,000 which pays off the current mortgage as well as paying the closing costs of $5,000, plugged into an interest rate of 4.25%, your new monthly payment is $1,255.  That is a monthly savings of $165.

If the $165/month savings was your goal then it works perfectly using the new loan to cover the $5,000 worth of costs. At the end of the day, that monthly savings may be exactly what your family needs in a tough financial climate. 

The second way this is done is by the lender offering the home a slightly higher interest rate than that bank is. With this one, you’ll have to pay your tax and insurance escrows separately. So if the rates for 30-year mortgages are 4.25%, and a lender offers 30-year mortgages at 4.75%, the lender earns more.  This incremental revenue is then offered as ‘lender credit’ and can be used to pay closing costs. So with the same $250,000 mortgage, this option would result in a $1,304/month payment, $116 monthly savings and no increase in the existing principal balance. The 4.75% interest rate results in a “lender credit” of $5,000 which is used to pay closing costs. You’ll pay in the form of a higher interest rate and more interest paid over time.

Every refinancing circumstance is different; so you really need to study both options with your lender to find the option best suited for your specific individual circumstances. You need to take the time to find a real professional, one that has the expertise and experience to guide you in the right direction make sure you accomplish your goals with the refi whatever those goals may be.

I'm sure you can see that without the guidance of a trained professional you could easily end up putting yourself in a worse financial situation - depending on what your overall goals may be - so it really is imperative that you take the time needed to find the ‘perfect fit’ for you.

It is very important that from day one you are specific about why you want to refinance in the first place and what is the overall goal? It's easy to say ‘low interest rates’ EVERYONE wants low-interest rates, but that's just the sparkling gem that catches the eye of prospects and gets them thinking about refinancing.

Things like making your monthly payment lower, shortening time on your mortgage loan or using equity to pay off other debt or another purchase are all ‘doable’ goals. Doable with the proper terms and the guidance of professional.

The key, of course, is to be realistic about whether or not refinancing your mortgage can actually achieve that goal. If your goal is to save on your monthly payment, how can you realistically save? With those fees added to your loan, the monthly savings may not be enough to make it worth doing. If there is not enough equity to take much ‘cash-out’ and that’s your goal, save the time and trouble.

As I'm sure you can tell, it really comes down to the numbers and your professional refinance broker can easily show you if it works or not.

The bottom line with refinancing is simple - it either makes sense or it doesn’t.

The real question is not who pays these refinancing costs but how the costs are paid.

From the beginning to ending a refi usually takes about 45-60 days. This includes the application process, appraisal, the approval and to close a mortgage refinance. These days the standard rate lock-in is 60 days. The vast majority of refi loans have no problem closing and funding inside that 60 day period. There are situations though, and yours could be one, should your loan become delayed and looks like it will surpass the interest rate lock-in period, then it will need to be extended. And it can be but of course, there is a fee involved. Normally its.25% of the full loan amount that gets added to your closing costs for a 15-day extension. 

If we are talking about a $250,000 loan, that would add an additional $625 closing cost that was likely not accounted for at the start. And take one guess who pays that? Yep, you do. I have heard about many cases of loans that locked for 45 days but because of subordination agreements or appraisal value reconsiderations, the extension fees piled up causing the benefits to refinancing to be completely lost.

That's why it’s so imperative that you take the time to find a real pro with the experience to navigate this type of situation should it be a possibility in your case. Any issues that would cause a delay of your approval should be addressed by the lender right from the start. The reality is income verification, asset and credit documentation requirements are rigorous and things like a second mortgage or a Home Equity Line of Credit, or unrealistic value expectations could add untold days to the refinancing process.

Finding the best agent for buyers and sellers

No matter what your current homeownership status, your perfect, ‘once in a lifetime’ dream home could be right around the corner and you’d never know it unless you have the right agent.

Even if you are trying to dump a home that has no equity, needs repairs and you are pretty sure it's at least a little haunted...there IS a perfect real estate agent for YOU and YOUR SITUATION...you just need to know how to look and where to look. That is what you are going to learn in this article, so get buckled in and let's get started.

In this article, I’m going to share with you a little-known process that will ensure you have the exact right agent for whatever your needs are. It is vitally crucial that you have an agent with the right experience, resources, and expertise to help guide you through the process you are undertaking whether it be buying your dream home or selling your current house.

Many people take the finding of an agent for granted believing that any old agent can help them. That would be like if you have a foot problem and you walk into a doctors office who specializes in colon issues. Well, he’s a doctor right? He’ll do just fine for your foot problem huh?

The same thing goes with a real estate agent. First and foremost you need one who is actually active in the market. There are many ‘weekend warriors’ who got their license on a whim and have never really done much. That's absolutely not who you want.

The process of finding your dream home involves many elements like neighborhood research, locating a good match to your budget and lifestyle, initial contact and talks to work out the best deal on price and possible repairs. Buying a home is likely going to be one of the biggest purchases of your lifetime, so you must be committed to the process. For most people, doing all this alone is not a viable option, that's why you need to find a good agent.

This entire process will be MUCH easier when you have the guidance, connections, and advice of a great real estate agent that has the unique talents, skill set, and experience that fits your project perfectly. A great agent that is well matched to you have the inside knowledge to help you manage a great price, even in a hot market and save you thousands of dollars - whether you are the buyer or the seller. It really doesn't matter which side of the fence you are on, whether you are a buyer or seller, the following keys can help you find that perfect agent for you.

  1. Initial interview for a potential new agent and follow up.

  2. Take note of their communication style

  3. Discuss their negotiation strategy

  4. Review the agent's certifications and experience

  5. Obtain and contact everyone in the agent's network

  6. Discuss the agent's workload

  7. Search public records of the agent

Initial interview for a potential new agent and follow up.

What kind of experience does your agent have with clients like yourself? Have they sold in the neighborhood you’re looking at before, if so how much? If you are headed to a new state, your agent with your direct (and only) link to insights and info about the area you’re looking at - how much experience does he have here?

One simple question you ask all the agents references will sum up all you need to know. “Would you work with this agent on your next sale or purchase?” Austin, TX agent John May “if the answer is yes, you’re probably good to go but if there is ANY hesitation you should ask why and continue to dig into the agent's background

Get their style of communication

Chasing your agent around to get critical updates and info isn't going to work. Another question to ask references is if they had a hard time getting their agent on the phone or getting updates.

 Find out how they plan to negotiate on your behalf

Giving you suggestions for offers, competitive market guidelines, and closing table backup plans are all some of what a good agent should provide you. Negotiations are a huge part of the process and having an agent who is confident and experienced in this process can make or break a deal. 

You should feel like your agent is confident enough to turn down a deal that is not what you are looking for, especially when they know they can get you better. Understanding your needs and bringing a deal together without getting in the way is very important. There is a time to walk away and sometimes total silence is a great tactic to use.

Review the agent's certifications and experience

In addition to a real estate license, there are other certifications agents can get like a certified residential specialist (CRS) has specific training for residential real estate transactions as well as an accredited buyer’s representative (ABR) who have completed training to represent buyers.

What's the agent's network look like

Having a broad network of potential buyers and sellers, as well as great relationships with other agents is the hallmark of an experienced and successful agent. Having a team of trustworthy contractors, handymen, designers, and architects available to help you with renovations, small fixes, or designs is simply mandatory for an agent you need.

Agent workload

You need to find out how long an agent has been in the field as well as whether they are a full-time agent or whether this is just a part-time endeavor for them. This project is likely one of the biggest commitment YOU will make in your lifetime and you need a full-time, dedicated, and extremely experienced professional.

Public records of the agent

If your agent has been disciplined and why that's information you really need to know. It could be indicative of the quality of service they truly provide and maybe a reason to avoid any further research on them.

The bottom line is as buyers and sellers you need to be able to trust your real estate agent. You’ve probably found your match if you end up with a personal connection with an agent.

There are really no transactions that won't have some bumps and struggles. The agent needs to remember that the client is part of the team and may have a much-needed outsider’s perspective. 

You have to look at this as at least a 4 to 6-month commitment, so making sure your agent matches up with your needs in all of these areas is of vital importance. And once you find a really great fit, you’ll be able to call on them in the future knowing they will have your best interests at heart.

How agents get paid

You need to understand that the buyer’s agents split the commission with the seller's agent with no additional costs to the buyer. The commission is paid by the seller. Now you can likely see why the listing agent has a big incentive to make a quick sale in lieu of putting your needs first - because they get the full commission.

If things don't work out it can really cost you. You need to read the terms of separation that are disclosed in the buyer’s agent agreement. Make sure you understand what your signing and make sure there is a way out if you and your agent just don’t seem to click. This must be done BEFORE signing anything.

Here is the uncomfortable ‘truth’ about this industry

You simply cannot afford to be stuck with someone you aren’t comfortable with given the importance of this decision. One option: Try out a short-term initial agreement — perhaps 30 days or so — renewable for another 60 days upon mutual consent.

With the number of jobs in real estate expected to continuously grow by 6% through 2026, according to the U.S. Bureau of Labor Statistics, the competition for agents is and will remain strong. This simple fact makes your search for the right agent even harder BUT ALSO even more important. Don't get me wrong, it will be a challenge for any homebuyer or seller to find the right real estate agent to work with. But using the tools I've given you here, I just made the process at least 80% easier than without them.

Taking a future look at this marketplace it's not hard to imagine that with so many agents vying for clients, it might be easy to get overwhelmed with offers and opportunities as a buyer or seller. Just keep coming back to starting place which is matching the right agent to the right client. Matching your wants and needs with an agent who can provide you the personality, drive, and effort you are looking for can make the difference in whether you have a good experience or become another ‘home seller nightmare story’.