No Out of Pocket vs. No Cost
As different as night and day!
Defined:
No Cost - No origination fees or discount points AND the broker pays ALL closing costs including the title, appraisal and bank junk fees. The broker pays all the closing fees out of the Yield Spread Premium (Commission) paid to the broker by the bank.
No Out of Pocket Expenses - In this transaction, the broker “rolls in” the origination points, discount points and all the title and bank fees. This loan authorizes the broker to charge the borrower as much as they can for the loan. Borrowers typically spend 3 or 4 years just paying off the fees. The borrower doesn’t have to cut a check up front, instead they finance them over the term of the loan.
Over the years, we have received thousands of calls from borrowers confused over the difference. Unfortunately, when they hear “no out of pocket” , they assume “no cost”. Often, they don’t find out the difference until they get to closing. For example, we recieved a call today from a borrower that was promised a decent rate. When asked how much the loan was costing her, she didn’t know. Hey, it’s no out of pocket! It seems absurd to me. Would you go to a furniture store, pick out a couch, have it delivered to your house, and then ask how much it costs? Obviously not.
So, be careful, get a Good Faith Estimate UP FRONT and review your new loan amount. Find out EXACTLY how much the loan is costing you and make sure it still makes sense.