Navigating closing cost assistance
Closing cost assistance can significantly benefit first-time homebuyers and lower-income buyers. Understanding the types of assistance available and how to qualify can help ease the financial burden of purchasing a home. This guide will expand on closing cost assistance, who qualifies, and the various types of assistance programs available.
What is closing cost assistance?
Closing cost assistance is money given to homebuyers to help them pay for the real estate transaction process. The funds are often provided as a grant or a forgivable or non-forgivable loan to ease this financial burden. Numerous programs are available to assist first-time homebuyers and lower-income buyers with closing costs, designed to alleviate this financial strain.
Who qualifies for assistance?
Eligibility can vary, but generally:
- First-time homebuyers
- Lower to middle-income buyers
- Veterans and active-duty military personnel
- Rural area homebuyers
Don’t assume you’re ineligible; many Rhode Island closing cost assistance programs are easier to qualify for than you might think! Whether you are concerned about your income, credit score, or other factors, speaking with your Mortgage Equity Partners loan officer to see if you qualify for assistance is worthwhile. The right program can turn your dream of homeownership into a reality!
How does assistance work?
Typically, closing cost assistance is included as part of a down payment assistance program. These programs usually offer money that can be put toward the down payment or closing costs. The details and availability of these programs vary by type and location. Each program has its requirements and guidelines.
Types of closing cost assistance
Grants
Grants are typically need-based and do not have to be repaid. They provide immediate financial relief for buyers struggling with closing costs. Grants are possibly the best type of assistance because the money is a gift to homebuyers that does not need to be paid back.
Forgivable/non-forgivable loans
These are loans that must be repaid if you sell or refinance your home within a certain period. If you stay in your home for longer (often five years or more), the loan may be forgiven, turning it into a grant. This option encourages homeowners to maintain their property as their primary residence, supporting community stability.
Seller contribution
Sometimes, sellers may agree to cover part of your closing costs as part of the negotiation process. It is important to note that there may be a limit on how much the seller can contribute based on the type of loan you are using. If the seller won’t contribute and you are unable to afford these costs, contact a mortgage lender about rolling them into your loan. While this option may slightly increase your monthly payments, it can ease immediate financial barriers.
Lender credits
Lenders may offer credits toward your closing costs in exchange for a slightly higher interest rate. This can reduce your immediate out-of-pocket expenses. It is crucial to understand that if you choose the option of a higher interest rate, you will pay more over the life of the loan. Discussing this option with your lender can help determine if lender credits are a smart financial move for your situation.
Deferred-payment loans
Some closing cost assistance programs offer deferred payment loans that 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. This can provide immediate relief to homebuyers and allow them to focus on their mortgage payments without the added burden of additional loan repayments.
Rolling costs into loan amount
Another option is to roll your closing costs into your mortgage. This means you’ll pay for them over the life of the loan rather than upfront. In a purchase transaction, they can only be paid for by the seller, and the money cannot be for repairs. This option may result in paying interest on your closing costs over the life of the loan, which could make your home slightly more expensive in the long run. It is important to weigh the costs and benefits of lowering your upfront payment.
Government programs
Various federal programs offer closing cost assistance. Your Mortgage Equity Partners lender can guide you through these options and help qualify you for one of these loans. The Federal Housing Administration backs FHA loans, these loans often have lower down payment requirements and may include help with closing costs. VA loans are available to veterans and active-duty military, and these loans usually require no down payment and have limited closing costs. USDA Loans are for rural homebuyers, and they may have lower interest rates and reduced closing costs. HUD Programs are where the Department of Housing and Urban Development offers various programs to assist with home buying costs.
Local assistance programs
Many states and municipalities offer grants or loans to help with closing costs. It’s worth researching what’s available in your area. You should also contact your local lender. They can provide detailed information about various assistance programs in your area and guide you through this difficult process, ensuring you get into your dream home at the lowest cost possible.
Where to start
Talk to your loan officer
Your mortgage loan officer is a valuable resource who can guide you through your options and help you find the best solution for your financial situation. Jim Driscoll, Branch Manager at Mortgage Equity Partners (MEP) – Methuen Branch, advises:
“To maximize your savings on your transaction, check with a lender specializing in down payment assistance. They can help you obtain the maximum assistance for your down payment and closing costs.”
It is best to use a local Rhode Island lender like MEP instead of a national lender since local lenders like Jim are well-versed in all the programs available in your area.
With the right information and resources, you can make informed decisions and reduce the financial stress of purchasing your first home. If you’re ready to explore your options, don’t wait. Speak to a knowledgeable loan officer today to get started on your path to homeownership!
