How to beat the closing cost doldrums
Are you in the final stretch of buying your first home, only to be surprised by unexpected closing costs? If you’ve been diligently saving for your down payment, additional expenses like closing costs can take a big bite out of your budget. Imagine you’ve managed to set aside money for your down payment– then you find out you need to come up with another $7,500 or more for closing costs. Closing cost assistance could be the helping hand you need.
What exactly is closing cost assistance?
Closing cost assistance helps borrowers with the expenses of finalizing a home purchase. Buyers are typically responsible for paying various closing costs when purchasing a home, which can include appraisal fees, attorney fees, title insurance, loan origination fees, and other expenses related to the home purchase.
Local, state, and federal programs exist to ease the financial strain of these costs. They may offer grants or loans that don’t always require repayment. Don’t assume you’re ineligible; many programs are easier to qualify for than you might think. Check out all of our active down payment and closing cost assistance programs and see if you qualify!
Each closing cost assistance program has its own guidelines and requirements. The funds can typically be used for both down payments and closing costs, giving you more flexibility in allocating your savings.
First-time buyers and those with modest incomes should explore what the U.S. Department of Housing and Urban Development (HUD) offers. Federal loan programs like FHA, VA, and USDA might also include closing cost assistance.
Where can I get closing cost assistance?
State and local programs aim to foster homeownership within communities and are typically designed to encourage homeownership in a specific area. They can be provided as grants or low-interest loans, some of which might be forgiven.
Apart from public initiatives, a world of private lenders and nonprofits offer assistance with closing costs. These organizations might focus on helping specific groups with their own eligibility requirements.
How can seller concessions and lender credits help with closing costs?
Lenders like Mortgage Equity Partners may offer special programs that can provide help with closing costs. These options might include lender credits in exchange for a higher mortgage interest rate. Additionally, seller concessions can further reduce your burden by having the seller pay a portion of the buyer’s closing costs directly.
How does closing cost assistance work?
Generally, closing cost assistance is not a standalone program but is included in a down payment assistance (DPA) program. DPAs typically offer money that can be put toward your down payment or closing costs—whatever will help most with your home purchase.
Here are the most popular options for closing cost assistance:
1. Grants
Closing cost grants for homeowners are non-repayable and possibly the best financial assistance available. Nonprofits and government programs often provide grants for closing costs to first-time buyers or low-income individuals, helping them to cover upfront costs without having to pay them back.
2. Forgivable loan offers
Forgivable loan offers are a great option. The loan doesn’t have to be repaid if the homeowner remains in the house for a set period, effectively turning it into a grant. This option encourages homeowners to maintain their property as their primary residence for the term. It supports community stability and homeowner commitment.
3. No- or low-interest loans
No- or low-interest loans are often offered as a second mortgage; this type of loan aids in covering closing costs and is repaid alongside the primary or first mortgage. It’s designed with no or low interest to lighten the financial load on the homebuyer. State or local housing finance agencies usually provide these loans.
4. Matched savings programs
Some employers or community organizations may offer matched savings programs. The organizations will match the amount the homebuyers have saved as an incentive. The matched amount often comes as a grant that provides extra support without repayment.
5. Deferred-payment loans
Some closing cost assistance programs offer deferred-payment loans, which do not require monthly payments. Instead, the loan is repaid when the home is sold, refinanced, or when the first mortgage is fully paid off. Deferred payment loans can provide immediate relief to homebuyers and allow them to focus on their mortgage payments without the added burden of additional loan repayments.
6. Lender credits
Participating lenders might provide lender credits to help with closing costs. A loan officer can review this option with you in detail if applicable.
7. Seller contributions
Seller contributions towards the buyer’s closing costs can decrease the cash required at closing. This agreement is particularly beneficial in competitive markets where sellers are willing to offer more to close the deal.
While closing costs can be an unwelcome part of the home-buying process, multiple programs are designed to help you achieve your homeownership goals and lessen the impact of this expense. Remember, the path to acquiring a new home is not just about making it to the closing table; it’s about doing so in a way that maintains your financial health and peace of mind.
Contacting a loan officer is a smart first step for buyers seeking guidance when purchasing a home. Loan Officers are licensed professionals who work with homebuyers to help finance a home. Mortgage Loan officers focus only on mortgages, and they may be able to provide you with a list of resources to help you with down payment and closing cost assistance programs. Another possibility is contacting your state’s Housing Finance Authority (HFA) for more options.
Contact one of our mortgage professionals today for more information or check out our active closing cost assistance programs!
