Purchasing a house is likely the biggest financial decision you’ll ever make — and the most expensive. In addition to mortgage payments spread out over several decades, home buyers are required to cover the closing costs of attaining that mortgage as well as offer up a significant down payment out of pocket. For many aspiring homeowners, these costs are prohibitive.
What Are Closing Cost Assistance Programs?
The closing costs on a new house typically run between 2-5% of the mortgage value, meaning that buyers need to have thousands of dollars on hand just to seal the deal.
Closing cost assistance programs help cover these costs for eligible low- to moderate-income borrowers. This funding makes it possible to afford the up-front costs of home ownership and allows buyers to put their savings toward a bigger down payment and a more valuable home. This financial assistance also helps sellers and lenders expand their market to lower-income buyers.
How Do They Work?
Closing cost assistance programs come in many different forms, but are most commonly offered by state or local Housing Finance Agencies (HFAs). These are not-for-profit organizations approved by the U.S. Department of Housing and Urban Development (HUD), and the assistance is generally structured as a grant to buyers who meet specific eligibility requirements.
The terms of these grants vary. Some of them must be repaid with interest, others don’t have to be repaid at all, and the repayment of others still is tied to how long the buyer lives in the home before refinancing, selling, or moving. Closing assistance grants can range anywhere from several hundred dollars to over $10,000 — depending on the buyer, mortgage, state, and HFA.
Eligibility requirements for buyers likewise run the gamut. To apply, you may have to meet any number of qualifications regarding your credit score, debt-to-income ratio, cash reserves, and more. There may a limit on your income, a cap on the purchase price, and stipulations placed on your mortgage. You may also be required to attend homebuyer education classes and/or declare the new home your primary residence.
In general, closing cost assistance is provided only toward the purchase of single-family units.
How to Choose the Right Closing Cost Assistance Program
There is a range of lenders, agencies, and commissions offering an array of assistance programs that differ from state to state. It’s a good idea to do your research and find the best option for your personal situation — ideally with the help of an experienced local real estate agent.
Without going into too much detail, closing cost assistance is offered in the form of repayable second mortgages (generally at subsidized interest rates), “soft second” mortgages (that may be partially or fully forgiven), and non-repayable grant funds. Each of these options comes with its own set of benefits, challenges, and eligibility requirements.
To make the right choice, it’s important to fully understand your financial situation and the terms of any program you apply for.
You may also qualify for even more specialized assistance. Closing cost assistance programs often have separate terms for first-time homebuyers — which can mean anyone who hasn’t purchased a home within the past three years — as well as groups such as recent college graduates, veterans, police, firefighters, teachers, and active military personnel.
Finally, since 2018, mortgage lenders have been allowed to offer closing cost assistance directly to homebuyers. Though these grants come with their own unique restrictions, they can be extremely convenient for struggling borrowers. Lender grants can be especially appealing because buyers are not required to pay them back.
The Clever Home Buyer Rebate Program
If you’re buying a home and considering a closing cost assistance program, you’re looking to make every dollar count.
Clever Partner Agents are top-performing, full-service real estate agents who can help you navigate the financial mires of home buying. An experienced agent can help you negotiate the best purchase price and find the most favorable mortgage, not to mention guiding you to hidden savings like closing cost assistance programs.
Even better, all Clever Partner Agents offer a commission rebate of up to 1% of the final purchase price of your home. This Home Buyer Rebate is yours to do with as you please: put it toward your down payment, closing costs, moving expenses, mortgage premiums, or even — in some cases — take it as cash.