Mortgage closing costs include one-time fees you pay to the lender, appraiser, title company, and settlement agent in addition fees for a host of other reports and certifications required to get your mortgage approved. If you get an FHA, VA or USDA mortgage you are also required to pay an upfront mortgage insurance or funding fee at closing, although you can also add this cost to your mortgage amount.
In addition to these one-time costs, you are also required to pay recurring closing costs, which are expenses that you are required to pay a portion of when your mortgage closes and you continue to pay after closing. Examples of recurring closing costs include mortgage interest expense from the day your loan closes until the end of the month in which it closes, homeowners insurance premium, partial property taxes as well as ongoing mortgage insurance and homeowners association (HOA) dues, if applicable.
If you are required to use an impound account after your mortgage closes, you may be required to prepay a year or more of your property tax, homeowners insurance and monthly mortgage insurance into the account at closing. The impound costs you pay in advance are also known as prepaids.
Combined, recurring and non-recurring closing costs plus prepaids can add up to thousands or even tens of thousands of dollars, depending on your mortgage amount, loan program, lender, location and other factors. In many cases, closing costs are much higher than borrowers expect because they did account for non-recurring costs or prepaids.
Review How Much Are Mortgage Closing Costs?
When you factor in the money required for your down payment, paying for closing costs can represent a significant financial challenge for homebuyers with limited funds. If you are short on funds, you may need to wait until you save enough money to cover your closing costs. This can be very frustrating for prospective homebuyers, especially if you have already submitted an offer on a home.
One possible solution if you find yourself in this financial position is a closing cost grant. Also known as a closing cost assistance program, a grant can help you pay for all or part of your mortgage closing costs.
The best part about a grant is that you are not required to repay it as long as you live your home for a specified period of time, usually five years. If you move out of your home or refinance your mortgage before the minimum time period, you may be required to repay part of the grant on a prorated basis based on how long you lived in the property.
Review How Closing Cost Assistance Programs Work
Closing cost grants typically range from hundreds of dollars to $10,000 or higher depending on the grant program and provider. Closing cost programs are usually provided by HUD-approved state or local housing agencies, departments or commissions in junction with participating lenders. Visit the HUD website below and select your state to learn about closing cost grants and other homebuyer assistance programs that you may be eligible for.
HUD State Resources Website
We recommend that you contact your state or local housing agency or commission around the same time you contact lenders about getting pre-approved for your mortgage. The grant provider wants to understand the approximate mortgage amount and home you can afford to estimate your closing costs while it is helpful to let the lender know that you are applying for a closing cost grant.
Use our get pre-approved form to get approved for your mortgage. Getting pre-approved enables you to understand the mortgage you qualify for and gives you a competitive advantage when you shop for a home. Our pre-approval form is free, easy-to-use, no obligation and does not affect your credit.
In some cases, the lender may be able to recommend a specific closing cost assistance program or the housing agency or commission may recommend approved lenders that have worked with closing cost grant applicants in the past. Although the mortgage and closing cost grant application processes are separate it is helpful for all parties to be coordinated.
Additionally, the closing cost grant application process can take a month or longer so it is important to apply as early as possible. Plus, the lender may need to build additional time into the mortgage closing schedule.
Also, the sooner you reach out to your state or local housing agency to learn about program availability and guidelines, the better. Some programs have limited funds for closing costs assistance grants that may run out over the course of the year.
Programs also usually apply qualification requirements that cover property type, mortgage program as well as applicant income and asset limits. If you earn too much money or have significant financial assets, you may not be eligible for a grant.
In short, because the mortgage and closing cost grant processes work in parallel, we recommend that you reach out to both lenders and program providers several months before you start your home search process. Plus, understanding mortgage and grant program eligibility requirements before you apply better positions you to qualify for both.
Review Best Low Down Payment Mortgage Programs
Although the majority of closing cost grants are provided by HUD-approved housing agencies or commissions, your employer or lender may also offer programs. Although somewhat uncommon and usually only offered by larger companies, we recommend that you contact your human resources department to determine if your company provides homebuyer assistance programs.
Additionally, an increasing number of lenders are offering their own closing cost assistance programs. With a lender closing cost grant you are not required to repay the funds and the lender cannot charge you a higher mortgage rate in exchange for providing the grant.
The table below shows mortgage rates and fees for leading lenders in your area. We recommend that you contact multiple lenders to determine if they offer closing cost assistance programs. Shopping multiple lenders is also the best way to save money on your mortgage.
The final point we want to highlight is that you should never pay an individual or third party a fee for access to a closing cost assistance program. You can always contact a HUD-approved housing agency or commission, your employer or a lender to learn about closing cost grants, for free.
"Bridging the Down Payment Gap: Preparing for the first-time homebuyer opportunity." Publication Number 855. Freddie Mac, October 2016. Web.