Mortgage

Closing value help: The place to get it and the way it works

Need help with your closing costs?

Closing costs can be an unwelcome surprise for home buyers.

Imagine you have $20,000 saved for a down payment. Then you find out you’ll owe $7,500 in closing costs. Suddenly, your down payment is cut nearly in half.

Closing cost assistance can help relieve that burden, so you don’t have to spend as much of your savings on fees.

There are grants and loans are available to help with closing costs at the local, state, and federal levels.

If you qualify, you might find you could receive thousands of dollars to help with your mortgage costs.

Verify your home buying eligibility (Jul 1st, 2020)

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Closing cost assistance programs

It may be easier than you think to qualify for closing cost assistance.

Every state has special programs for first-time home buyers and other home buyers. Many of these programs award funds that can be used toward the down payment and/or closing costs. (Different rules apply, depending on the program.)

Oftentimes, closing cost assistance is offered by a HUD-approved local or state housing commission, or a mortgage lender.

These grants and loans are generous — often bestowing thousands to tens of thousands of dollars to eligible recipients.

The aid typically comes in the form of grants or loans. These grants and loans are generous — often bestowing thousands to tens of thousands of dollars to eligible recipients.

Check out these resources to locate and learn about programs you may qualify for:

Note, requirements to qualify for closing cost assistance vary by program. Income caps and maximum loan amounts are common.

But you don’t always have to be a first time home buyer to get financial aid. Many programs are available to repeat buyers, or former homeowners who haven’t owned property in the last 3 years.

Verify your home buying eligibility (Jul 1st, 2020)

Help with your down payment

If you’re looking for closing cost assistance, you might like to know that there’s financial aid available for your down payment, too.

In fact, down payment assistance is the primary focus for many of the programs described above. Closing cost assistance tends to be an extra benefit tacked on to down payment assistance (DPA) programs.

“Depending on the program and down payment needed, you may be able to apply any remaining funds toward closing costs,” explains Chris McDermott, a real estate investor and former mortgage broker.

Reggie Graham, branch manager for Silverton Mortgage, agrees.

“Some down payment assistance programs allow you to use the funds they provide for closing costs, while others may not,” he says.

How closing cost assistance works

Once you’ve located closing cost assistance programs in your area, you’ll apply for the aid.

Because many closing cost assistance programs are offered by state and local housing commissions, program eligibility and qualification guidelines can vary.

Home buyers should contact their local housing commission or agency and ask about what’s required to determine if they’re eligible for closing cost assistance.

To qualify for assistance, programs often require:

Minimum qualifications for income, credit score, and other financial factors Usually, the home must be a single-family property used as your primary residenceSome programs are only offered to both repeat and first-time purchasers; others are for first time home buyers only An application or processing fee may also apply.  

Typically, closing cost and down payment assistance funds do not have to be repaid. That’s often true unless you refinance, abandon, or sell the home within a set period (often within five years of getting the grant).

Say you do vacate, refi, or unload the property within that predetermined period. In this case, you repay the money on a prorated schedule.

For instance, assume you move out two-and-a-half years after receiving a $10,000 closing cost assistance grant or loan that requires you to stay put for five years. If so, you’ll owe half the money back–$5,000. Remain in place over five years and the grant funds are completely forgiven.

Many experts suggest getting pre-approved for your home loan at the same time you apply for closing cost assistance. This can help streamline the process for each application.

Another type of closing cost assistance is a fully amortizing second mortgage that’s subordinate to your first mortgage and must be repaid over a given term.

If you qualify for a grant or loan, you will also need to find a mortgage lender willing to work with the program.

Many experts suggest getting pre-approved for your home loan at the same time you apply for closing cost assistance. This can help streamline the process for each application.

Getting the seller to pay closing costs

Closing cost support doesn’t have to come exclusively from a housing finance agency or state/local program. There are other ways to come up with the cash, too.

“It’s very common for the home seller to pay for some or all of the buyer’s closing costs. This is most commonly seen by working the request into the buying offer,” says Graham.

He recommends, “at least request that the seller covers some of the closing costs, as it will allow the buyer to have more cash on hand for additional expenses that come with moving into a new home. Work closely with your real estate agent, who can negotiate this into your purchase offer.”

Danielle O’Brien, broker/owner of Parkway Real Estate, explains how this approach works.

“Essentially you’re borrowing more from the bank than you are actually paying the seller for the home. The seller is technically receiving this money. But they’re transferring it to the buyer to help with closing costs,” says O’Brien.

“(Having) the seller cover some of the closing costs… will allow the buyer to have more cash on hand for additional expenses that come with moving into a new home.” —Reggie Graham, Branch manager, Silverton Mortgage

“However, I usually don’t advise my clients to write this into an offer unless it’s necessary. That’s because it can be seen as a less clean offer that could turn off the seller.”

Alternatively, you can ask for closing cost help from a relative, friend, or loved one. Or, you may be able to tap your IRA, 401(k), or other retirement accounts for the funds if monies for emergency withdrawals are allowed.

“Some lenders will also let you roll your closing costs into the loan by paying a higher interest rate,” notes Graham. “But while you’ll pay less money upfront with this strategy, you’ll end up paying more in the long run through compounded interest.”

Whatever approach you explore, weigh the pros and cons carefully.

Check your home buying eligibility

Research local down payment and closing cost assistance programs in your area. Help is available in every state in the U.S.

It’s also worth looking into your mortgage options. With today’s low mortgage rates and low-down-payment loans, homeownership might be more accessible than you think.

Verify your new rate (Jul 1st, 2020)

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