If you’re planning to buy a home, you may be eligible for help with closing fees. That can allow you to take out a smaller mortgage or purchase a more expensive house than you would have otherwise been able to afford.
How Do Closing Cost Assistance Programs Work?
Each state has programs that provide homebuyers with funds that can be used for a down payment and/or closing costs. State and local housing commissions receive authorization from the U.S. Department of Housing and Urban Development to offer assistance. In some cases, nonprofit organizations and mortgage lenders have their own financial assistance programs. The amounts available and eligibility requirements vary by state.
Aid can take several forms. Some programs provide grants or forgivable loans that don’t have to be repaid, as long as the buyer lives in the house for a minimum number of years. If the homeowner sells the house or refinances the loan before that period of time has elapsed, the owner may have to repay a prorated amount.
Some homebuyers qualify for loans with low interest rates or no interest. Those second mortgages have to be repaid along with the primary mortgage.
Mortgage lenders sometimes offer borrowers credits that they can use to offset closing costs. Those loans typically have higher interest rates than standard mortgages.
Closing cost assistance programs often require recipients to complete a HUD-approved homebuyer education course. Those courses may be available online.
Who Is Eligible for Closing Cost Assistance?
Eligibility guidelines vary from state to state and program to program. Income limits apply. They vary based on household size and location. Programs typically require a minimum FICO score.
In most cases, closing cost assistance can only be used for a single-family house that will serve as a primary residence. Programs often place limits on purchase price. Some assistance programs are only available to borrowers who take out certain types of mortgages, such as a 30-year, fixed-rate loan.
Many programs are only available to first-time homebuyers, but others are open to buyers who have previously owned homes. Some programs specifically aim to help buyers who work in certain professions. For instance, members of the military, veterans, police officers, firefighters and teachers may be eligible for closing cost assistance through targeted programs.
How Can You Learn About Programs in Your Area?
You can find out about local closing cost assistance programs by checking with your state’s Housing Finance Authority. States typically have multiple programs available. Carefully review the eligibility requirements for all of them. Even if you don’t qualify for some programs, you may qualify for others.
Applying for closing cost assistance and getting approved may take a month or more. Start the process early to avoid having to push back your closing date.
