What is a no closing cost mortgage?
A no closing cost mortgage is a home loan where most closing costs aren’t paid in cash at closing. Instead, they’re typically handled in one of two ways:
- Lender-paid closing costs: The lender covers certain closing costs, and you accept a higher interest rate.
- Rolled-into-loan closing costs: Closing costs are added to your loan amount, so you pay them off over time (with interest).
Either way, you’ll typically pay less today in exchange for paying more over time.
What closing costs are typically included?
Closing costs are the fees and services involved in processing and finalizing your mortgage. They’re often around 2–6% of the home’s purchase price, and they can vary by lender, location and loan type.
Common items include:
- Appraisal fee
- Origination fee
- Credit report fee
- Title search and title insurance
- Recording fees
- Underwriting or processing fees
Keep in mind that even with a zero closing cost mortgage, depending on your lender’s requirements, you may still need to pay some items at closing, such as prepaid interest or initial escrow deposits for property taxes and homeowners insurance.
How a no closing cost mortgage works
Here’s what to generally expect if you go with lender-paid closing costs:
- The lender pays the closing costs upfront.
- The borrower pays a slightly higher interest rate over time.
- Monthly payments increase slightly.
If you opt for the rolled-into-loan model, on the other hand, here’s what the process looks like:
- The borrower finances the closing costs into the mortgage balance.
- The mortgage balance becomes slightly higher.
- Monthly payments increase slightly.
Pros and cons of a no closing cost mortgage
| Pros | Cons |
|---|---|
Lower upfront cash requirement | Potentially higher monthly payments due to higher interest rate or loan amount |
More cash available for moving, renovations and emergency reserves | You may pay more in total interest over the life of the loan |
May help you save money upfront when refinancing | If you keep the loan long-term, paying closing costs upfront is often cheaper overall |
Helpful flexibility if you expect to move or refinance again in a few years | Some costs, especially prepaids like taxes and insurance, may still be due at closing |
Requirements to qualify for a no closing cost mortgage
If offered by a lender, a no closing cost mortgage is a pricing option available to borrowers who qualify for a standard loan program. No closing cost structures may be offered on conventional loans and refinances.
Lenders typically look at:
- Credit score: For conventional loans, lenders generally look for a credit score of at least 620, with better pricing as your score improves.
- Income and employment stability: You’ll verify income and job history during underwriting.
- Debt-to-income (DTI) ratio: Lenders compare your debt payments to your monthly income to see how much more debt you can take on. They often look for a DTI of no more than 43%. Check out our DTI calculator to estimate yours.
- Loan-to-value (LTV): A stronger down payment for a first mortgage or more equity for a refinance can help you access better pricing and make lender credits more feasible.
Best situations for choosing a no closing cost mortgage
A no closing cost structure tends to fit best when:
- You plan to move within 5–7 years.
- You expect to refinance if interest rates drop in the future.
- You want to keep cash on hand for renovations, reserves or other big near-term expenses.
- You’re refinancing and your savings outweigh the trade-off of the higher rate or higher balance
How to decide if a no closing cost mortgage is worth it
Before committing to a no closing cost mortgage, ask yourself a few questions.
- How long will you keep the loan? If you’ll stay long-term, a loan with a higher interest rate or larger balance may cost more overall.
- How much will you save? Compare the upfront savings (closing costs you didn’t pay) to any higher monthly payment or extra interest.
- How much cash do you need today? If preserving funds helps you keep reserves or complete needed repairs, that flexibility may be worth paying a bit more over time.
- How do your loan options compare? It’s a good idea to consider a standard loan estimate alongside the estimate for a zero closing cost mortgage. Assess how much you’ll pay upfront and over time with each option.
Note: Citi only offers no closing cost mortgages with the Mitchell-Lama Housing Program, which is available exclusively in New York State.