FHA Closing Cost Assistance and Grants
Home buyers looking to purchase a home with an FHA insured mortgage may have the down payment, but often need assistance with the closing costs. There are multiple ways to find help coming up with the funds needed to cover closing costs whether it is through assistance programs or other creative solutions.
FHA closing cost assistance is available through first time home buyer programs, lender credit, seller concessions, and gift funds.
How Much are FHA Closing Costs
FHA closing costs can range anywhere from 2%-5% of the purchase price. The number one variable that will impact that percentage is the loan amount. It is important to distinguish between closing costs that are generated by the lender, third parties, and costs that are related to your escrows.
To learn more about FHA closing costs and to get an estimate, read [FHA Closing Costs]
4 FHA Closing Cost Assistance Program Options
You have 4 main options when it comes to closing cost assistance. Any one of the options below can help you to purchase a home without having to come to the closing table with closing costs.
1.Assistance Programs and Grants
There are down payment assistance and grant programs that exist in every state and county across the United States. Some of these programs will also provide funding for closing costs in addition to the down payment. The rules and options for each of these programs will vary which means you will need to contact a few of them to see what is available for you.
Applying for this type of assistance will take time and there is a chance you would have to take a first time home buyer course. If you are interested in learning more about assistance programs, then read [FHA Down Payment Assistance]
2.Seller Paid Closing Costs
When you are purchasing a home using FHA financing, sellers are permitted to contribute up to 6% of the purchase price towards your closing costs. This is called seller concessions and is often a negotiation point in many home buying transaction and can be very effective.
In some instances, you may need to offer a bit more for the home in exchange for the seller crediting some money back to cover closing costs. Your lender and real estate agent can help guide you with this process.
3.Lender Paid Closing Costs
Your lender may have the ability to offer a credit to help cover some or all of your closing costs. However, this does not come without a cost to you.
Lenders earn a commission based upon the rate they offer for your mortgage. If you ask them to also pay for your closing costs, they will charge you a higher rate. This higher rate will enable them to earn more commission they they can offset having to pay your closing costs.
This is another very effective way to find FHA closing cost assistance. If you would like to speak with a lender who will offer to offset your closing costs, then complete this short request form.
Gift funds are permitted in FHA loans to come from a relative or close friend. Gift funds are typically used to help with the down payment. However, gifts can also be used for closing costs even if the gift donor is already providing a gift for the down payment.
If you have someone in your life who is willing to provide a gift, then this is another great way to find assistance with FHA closing costs. Read more about FHA gift funds.
Can I Borrow Money for Closing Costs?
The only time a lender will permit you to borrow money needed for closing costs is if they offer it within their down payment assistance program. If you are planning to get a personal loan to help pay for the closing costs, you may need to do that a few months in advance so the funds can season in your bank accounts.
Can I Get a Cash Advance for Closing Costs?
A cash advance to pay for closing costs may be possible, but it should not be something that you should consider. The interest you will pay against the credit card debt will be very high. You should look at any other option before attempting to take out a cash advance against your credit cards. It may send your debt to income ratio up and could jeopardize your mortgage approval. It is imperative to discuss this with a loan officer before doing anything.