For both new buyers and refinancers, it's important to understand what a no-cost mortgage loan or a no-cost refinance loan really means. "No cost" does not mean that closing costs (also known as settlement costs) have been erased. It means that the closing costs will be factored into the interest rate associated with the loan. Of course, this also means that, all other things being equal, the interest rate associated with a no-cost mortgage will always be higher than one where the borrower pays the closing costs up front.
Ask the lender or broker for a comparison of the up-front costs, principal, rate, and payments with and without this rate trade-off.
Be Prepared. You'll probably be asked for more information and documentation after you submit your application, but before your loan is approved be prepared to document your income and assets. Answer any questions and fax documentation to your loan representative as soon as possible.
If you want to make sure the interest rate your lender offers you is the rate you get when you close the loan, ask about a mortgage lock-in (also called a rate lock or rate commitment). Any lock-in promise should be in writing. Make sure your lender explains any costs or obligations before you sign.
Be Realistic. Lenders have tightened up loan requirements, so you'll need a good credit score and at least some equity in your home to refinance. To figure out how much equity you have, subtract the total amount that you owe on all of your existing mortgages from how much you think your home is worth. If your credit is severely impaired or you owe more than the value of your home, you probably won't be able to refinance right now.
