Closing Cost Assistance Programs: What First-Time Homebuyers Need to Know

Most people don’t understand what goes into buying a house until they decide it’s time to go through the process. Before that point, they think it’s all about finding the right home in the right neighborhood. But few think about the costs behind down payments and closing.
When it comes to closing costs there are several ways they can be handled. Buyers can ask sellers to pay them or pay a portion of them. Buyers can finance them into their mortgage but that means paying interest on them as well. The other option for first-time home buyers is using a closing costs assistance program.
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Closing Cost Assistance Programs
Most closing cost assistance programs are given as grants and do not require a repayment the way a loan does unless the homebuyer goes against one of the conditions of the grant. These often include:
- Residency requirements (you must live in the house for a designated period of time, usually five years)
- Ownership (you cannot sell the property before the agreed upon time)
- Refinancing (you cannot refinance during that time)
If any of these conditions are broken, the homebuyer will need to pay back the grant in full or the portion left in the agreed upon time. For instance, if the agreed upon time was four years and the homebuyer sold the home after two, she would need to pay back 50% of the closing cost assistance received, plus interest.
Most of the closing cost assistance programs are offered by HUD-approved (U.S. Department of Housing and Urban Development) state and local housing agencies and commissions. They are typically not-for-profit organizations and they offer a variety of other services such as first-time home buying counseling. They are not lenders.
To use their services you must meet several requirements. While the requirements may vary by group or organization, they generally include:
- Meeting a minimum credit score
- Meeting income qualifications and limits
- Securing lender approval for a mortgage (usually a 30-year fixed)
- Being a first-time homebuyer (some programs are just for first timers)
- Meeting residential requirements (property must be primary residence)
Some grant programs require an application fee.
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The Federal Housing Administration (FHA)
While not a typical closing cost assistance program, FHA is worth mentioning because of the program’s ability to help homebuyers lower the amount they need to put down. By making homeownership more affordable, money that was to be used for a down payment can go towards closing costs. This organization helps first-time homebuyers, especially those with less than perfect credit. Because this program guarantees a portion of the loan, lenders can be a little less stringent and first-time homebuyers can purchase a home for as little as 3.5% down. On an FHA loan, buyers will pay mortgage insurance premiums as part of the mortgage payments. You can find a list of FHA lenders on the <a “nofollow” href=”https://www.hud.gov/ll/code/llslcrit.cfm”>U.S. Department of Housing and Urban Development’s website.
If you’re a first-time homebuyer, you’ll want to work with someone who takes the time to answer all of your questions and anticipate those you don’t even know to ask. At Bay National Title, we consider a knowledgeable buyer our best customer and so we’re always eager to help explain the process.
Want to learn more about closing costs? Download our free eBook.
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