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How To Get A Zero-Closing Cost Mortgage

By Dan Green

U.S. consumers expect mortgage rates to keep rising, but that prediction may be based on what behavioral economists called “The Hot Hand Fallacy”; What mortgage rates are doing today for conforming, FHA, VA, and USDA loans; How zero-closing cost mortgages work, and how to get them from your lender.

Consumers Guessing On Mortgage Rates

The hardest thing to predict is the future, but that’s not going to stop people from trying.

According to government-backed Fannie Mae’s most recent National Housing Survey, a survey of 1,000 people nationwide, today’s consumers pretty much guarantee that mortgage rates won’t fall this year.

But should we believe them? No. No, we pretty much shouldn’t.

The track record for consumers predicting the future of U.S. mortgage rates is terrible.

And, there’s a reason why. It’s a behavioral economics theory known as the Hot Hand Fallacy.

The Hot Hand Fallacy is when a person thinks whatever is happening right now is going to continue into the future.

In gambling, it’s when you win randomly a few hands in a row and attribute that to a hot streak.

Logically, there’s no such thing and the same is true for mortgage rates. Just because rates are up this year doesn’t mean they’ll continue that way forever.

It’s just as likely that mortgage rates drop and whether rates are up or down for you on the day you need to lock is a just a matter of luck.

Don’t try to make predictions about the future of U.S. rates. If a rate looks good today, go ahead and lock it.

Tomorrow, it might be gone.

Click here to get today’s mortgage rates.

Today’s Mortgage Rates

Mortgage rates hit the floor today and next thing you know, mortgage rates got low low low low low low low low.

For conforming loans, FHA loans, USDA and VA loans, mortgage rates are down today, marking the third straight day of improvements.

Rates have been bouncing within a tight range for the last three weeks and quote you get from your lender will be based on your loan size, where you live, and how you’re doing with your credit.

The way you structure your closing costs will matter, too.

Talk to two or more lenders and find the mortgage loan options that work best for you.

Click to get today’s mortgage rates.

How To Get A Zero-Closing Cost Mortgage

You can pick your friends and you can pick your mortgage rates, but you can’t pick your friends’ mortgage rates.

And you can’t pick whether they pay closing costs or not, either, but if you could, you could affect the rate quotes they get from their mortgage lender.

It’s because closing costs and mortgage rates are related inversely. As one goes up, the other goes down.

It’s why paying one discount point to your lender will generally get you access to mortgage rates discounts of about an eighth of a percentage point off your original rate quote, and why choosing to pay no fees whatsoever will usually raise your rate by about that same eighth.

This second type of setup is what’s known as a zero-closing cost mortgage and you pay none of your own costs when your loan’s set up in this way.

Your lender pays them for you.

And, yes, you’re going have a higher monthly payment for the right to go zero-cost, but you do get to save your upfront cash for something more pressing.

So, which closing cost scenario is right for you? Talk to your lender and ask for help with the math.

Get A Mortgage Rate Quote Here

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Written by Dan Green

Dan Green is a personal finance expert and the founder of Growella. His expertise has been cited by The Wall Street, NPR, and CNBC; and, his advice has helped millions of people make better choices with their money. Dan hosts the mortgage news show "The Mortgage Minute-and-a-Half" three times weekly on YouTube.

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