Closing Cost Assistance (CCA) | Programs & Grants 2023

By: Erik J. Martin Updated By: Ryan Tronier Reviewed By: Paul Centopani
June 23, 2023 - 15 min read

Need help with your closing costs?

Closing costs can be an unwelcome surprise for home buyers.

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

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If you qualify, closing cost assistance can help relieve that burden and potentially provide thousands of dollars so you don’t have to spend as much of your savings on fees.

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What is closing cost assistance?

Closing cost assistance is money given to home buyers to help them pay for the costs of closing a real estate deal.

Buyers are typically responsible for paying various closing costs when purchasing a home, which can include fees such as appraisal fees, attorney fees, title insurance, loan origination fees, and other expenses related to the home purchase.

Closing cost assistance programs are intended to help buyers reduce their financial burden by providing funds or grants to offset some or all of these closing costs. The specifics and availability of such programs may differ depending on location and program.

Types of closing cost assistance programs

Grants and loans are available at the local, state, and federal levels to help with closing costs. It may be easier to qualify than you think.

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Every state has special programs for first-time home buyers. Repeat home buyers can often find help, too.

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.)

Grants and loans are available at the local, state, and federal levels to help with down payments and closing costs.

These programs can come from different sources, each with its own set of guidelines and requirements.

Federal assistance programs

For qualified buyers, federal programs like the FHA, VA, and USDA offer loans that may include closing cost assistance. Additionally, programs offered by the U.S. Department of Housing and Urban Development (HUD) can help with closing costs, especially for first-time home buyers and those with low-to-moderate incomes.

State and local assistance programs

Numerous state and local assistance programs assist residents with closing costs. These programs are typically designed to encourage homeownership in the community. Grants or low-interest loans, some of which might be forgiven, are two ways they can be provided.

Nonprofit and private assistance programs

Private lenders and nonprofit organizations also provide assistance programs. These can have a wide range of eligibility requirements and types of aid offered. Some might concentrate on helping particular communities, like veterans or single parents.

Seller concessions or lender credits

In some circumstances, the lender or the seller might agree to pay a portion of the closing costs. A flat fee or a percentage of the closing costs may be included in the seller’s concessions. In exchange for a higher mortgage interest rate, lenders may offer credit.

How does closing cost assistance work?

Generally, closing cost assistance is not a standalone program. It’s included as part of a down payment assistance (DPA) program.

DPAs typically offer money that can be put toward your down payment or closing costs — whatever will help most with your home purchase. The funds can come to you in one of several ways:

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  • Grant: The money is never repaid
  • Forgivable loan: The loan doesn’t have to be repaid if you stay in the home for a set number of years
  • No- or low-interest loan: This loan would be repaid in tandem with your primary mortgage
  • Lender credits: Some mortgage lenders offer credits to cover closing costs. But be aware that these mortgages often come with higher interest rates
  • Seller contributions: In certain situations, the seller may agree to contribute towards the buyer’s closing costs as part of the negotiation process. This can help reduce the buyer’s out-of-pocket expenses at the time of closing

These grants and loans can be generous, often bestowing up to tens of thousands of dollars on eligible recipients.

Home buyer aid is often geared toward low- and moderate-income home buyers. But that’s not always the case. In expensive cities like San Francisco and New York, for example, the income limits to qualify for down payment and closing cost assistance can be quite high.

So before you dismiss the idea of qualifying for help, check with your real estate agent, loan officer, or local Housing Finance Agency to learn what’s available.

You may not have to repay closing cost assistance

Often, closing cost and down payment assistance funds do not have to be repaid as long as you remain in the home as your primary residence for a set number of years. You’ll likely have to repay the funds if you move, refinance, or sell the home within that period.

Say you vacate, refinance, or unload the property within that predetermined period. In this case, you’d 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 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.

Another type of closing cost assistance is a fully amortizing second mortgage. These loans work a lot like your primary, or first mortgage. They charge interest and must be repaid over a given term.

But you’ll need to find a participating lender

If you qualify for a closing cost 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.

Many states’ Housing Finance Agencies offer first mortgages designed to sync with down payment and closing cost assistance programs. Housing agencies usually offer these programs through approved lenders.

Where to find closing cost assistance

A good place to start is with your state’s Housing Finance Authority (HFA).

These government agencies typically offer mortgage programs and assistance for first-time home buyers. At the very least, they’ll list resources to turn to for help with your closing costs and down payment.

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You can also check out these articles to locate and learn about programs you may qualify for:

Note that 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 three years.

How to qualify for closing cost assistance

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

When it comes to getting help with closing costs, knowing the basic requirements and eligibility criteria can be very important. While specific requirements may differ between programs, there are some general guidelines to remember.

General eligibility criteria

The eligibility requirements can vary because state and local housing commissions offer so many grant programs. But they tend to include:

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  • Income limits: You typically can’t make more than your area’s median income (AMI). Your household income limit is based on your household size
  • Minimum credit score requirements: A minimum FICO score of 620 to 640 is common
  • Property requirements: Usually, the property must be a single-family home used as your primary residence. There may also be purchase price limits
  • Loan type: Some organizations offer specialized mortgage loan programs that can be used with down payment and closing cost assistance. Other assistance programs can be used with just about any loan type (conventional loans, FHA loans, VA loans, etc.)
  • Homebuyer status: Some programs are offered to both repeat and first-time purchasers; others are for first time home buyers only. Most programs define first-time buyers as anyone who hasn’t owned a home in the past three years
  • Homebuyer education: Borrowers typically must complete a homeownership program. These are often only a few hours long and available online
  • U.S. residency: Status as a resident is also significant. Most programs demand that applicants be citizens or authorized residents of the United States.

Many areas have more than one DPA program operating. So if you don’t qualify for the first assistance program you try, keep digging to see if there are others you can apply for.

Tips to increase your chances of qualifying

Attending a homebuyer education course is one way to improve your chances of being eligible for assistance. You can learn vital information about the home-buying process from these courses, which are frequently provided online. These courses may occasionally be necessary to qualify for these assistance programs.

It’s also important to keep your credit score in good shape. To raise your score, pay off your debt as soon as possible, keep your credit card balances low, and pay your bills on time.

Last, get pre-approved for a mortgage. This not only helps you determine what you can afford, but it also demonstrates your commitment to buying a house.

Documentation required

To qualify for closing cost assistance, you’ll need to provide various documents. This typically includes

  • Tax returns
  • W-2s or other proof of income
  • Bank statements
  • Proof of U.S. residency

If you’re applying for a program that requires you to be a first-time homebuyer, you may also need to provide proof that you haven’t owned a home in the past three years.

Pros and cons of closing cost assistance

While closing cost assistance programs can be of great help to many home buyers, they come with their own set of advantages and disadvantages.

Benefits of closing cost assistance

One of the primary benefits of closing cost assistance is the financial relief it provides. By reducing the upfront costs of buying a home, these programs can make homeownership more accessible, especially for first-time or low-income buyers.

Additionally, they can enable buyers to maintain more savings for emergencies or home repairs or to invest in home improvements.

Drawbacks of closing cost assistance

On the downside, many assistance programs come with conditions. For instance, some programs may require you to live in the home for a certain period of time or offer the assistance as a loan that gets repaid when the home is sold.

Also, some forms of assistance, like seller concessions or lender credits, might result in a higher purchase price or interest rate.

Before applying for closing cost assistance, it’s important to thoroughly understand the terms of the program and consider whether it’s the right fit for your financial situation.

What are closing costs?

The term “closing costs” refers to a broad range of fees associated with home purchases. They are typically paid when the transaction is closed, hence the name. Fees for the mortgage loan, title searches, insurance, surveys, and other expenses can be included in these costs.

Typical closing costs

There are several typical closing costs that you should be aware of as a homebuyer.

  • Loan origination fee: Your lender charges this fee to process the new loan. It often ranges from 0.5% to 1% of the total loan amount.
  • Appraisal fee: An appraisal is required to determine the fair market value of the home. The fee for this service typically ranges from $300 to $500.
  • Title search and insurance fee: Title search and insurance protect you and your lender from any future property ownership claims. Fees for these services can vary widely but typically run between $500 and $1000.
  • Inspection fees: These fees cover the cost of home inspections, which can identify potential issues with the property.
  • Escrow deposit: You may be required to put down two months’ worth of property tax and mortgage insurance payments into an escrow account.
  • Recording fees: Your neighborhood city or county levies these fees for recording new land records.

Why closing costs can be a burden to home buyers

Since closing costs are an additional expense on top of the down payment and the home’s purchase price, they can be a major burden for home buyers. They frequently represent between 2% and 5% of the loan balance, which can total thousands of dollars. Finding this extra cash can be difficult for many buyers, especially first-time or low-income buyers.

How to apply for closing cost assistance

Applying for closing cost assistance does not have to be intimidating. If you follow these steps, the process will run more smoothly.

Step-by-step guide to the application process

  1. Research: Start by researching the different closing cost assistance programs available in your area. This includes federal, state, local, and nonprofit programs. Determine which ones you might qualify for based on your income, credit score, and other factors.
  2. Gather your documents: Prepare all necessary documentation, such as proof of income, tax returns, bank statements, and other relevant information.
  3. Submit an application: Apply for the assistance program either online or in person, depending on the program’s requirements. Fill out all required forms accurately, and attach your documents.
  4. Follow up: After submitting your application, be sure to follow up. The approval process can take some time, but regular check-ins show your continued interest.

When to apply

The best time to apply for help with closing costs is as soon as you start thinking about buying a home. It’s best to start early because the process can take a while.

What to expect after applying

After you apply, you’ll have to wait for approval, which could take anywhere from a few weeks to a few months. If you’re approved, you’ll find out how much help you’ve been given and if there are any rules or requirements that come with it.

Other ways to reduce closing costs

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

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1. Ask the seller to pay closing costs

“It’s 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 Reggie Graham, branch manager for Thrive Mortgage.

“At least request that the seller cover 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,” he recommends. “Work closely with your real estate agent, who can negotiate this into your purchase offer.”

Danielle O’Brien, broker and 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. “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.”

2. Use a cash gift from a loved one

Alternatively, you can ask for closing cost help from a relative, friend, or loved one.

Most major home buying programs, including FHA and conventional loans, allow you to use gifted funds for the down payment and closing costs.

VA loans and USDA loans do not require a down payment, but you could still use gift money for your closing costs.

The one thing you must do is make sure the gift funds are properly documented in order for them to be accepted by your mortgage lender.

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3. Have the lender pay your closing costs

“Some lenders will also let you roll your closing costs into the loan by paying a higher interest rate,” notes Graham. This is known as a lender credit.

“But while you’ll pay less money upfront with this strategy, you’ll end up paying more in the long run through compounded interest,” he cautions.

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

4. Choose a less expensive home

Finding homes with lower sales prices can also make closing costs more manageable.

Many closing costs, such as the loan origination fee, are charged as a percentage of your loan amount. A smaller amount requires a smaller origination fee.

Other costs come as flat fees, though, so not all costs will be proportionate to your loan size. Smaller home sales prices have another advantage: more affordable monthly payments.

Down payment assistance

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

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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.

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

Low-down-payment mortgage options

Getting a loan that requires a low down payment could free up more money to spend on closing costs, whether you’re spending money you’ve saved or money you’ve accessed through a grant or loan.

  • FHA Loan: The Federal Housing Administration insures this loan, which is a well-liked low-down payment mortgage option. FHA loans typically require a down payment as low as 3.5% of the purchase price.
  • Conventional 97 Loan: This loan is a conventional mortgage option that allows for a down payment as low as 3% of the purchase price. It is available through Fannie Mae and Freddie Mac.
  • HomeReady Mortgage: HomeReady is a program offered by Fannie Mae that allows qualified borrowers to finance a home with a down payment as low as 3%. It offers flexible underwriting criteria and allows income from non-borrower household members to be considered for qualification.
  • Home Possible Mortgage: Home Possible is a Freddie Mac program that enables borrowers to finance a home with a down payment as low as 3%. It offers flexible sources of down payment, including gifts and grants, and allows non-traditional credit histories to be considered.
  • VA Loan: VA loans are available to eligible veterans, active-duty service members, and surviving spouses. They offer the benefit of no down payment requirement, making them a great low-down-payment option.
  • USDA Loan: USDA loans are designed for low- to moderate-income borrowers purchasing homes in eligible rural areas. They offer no down payment options for qualified applicants.

FAQs about closing cost assistance

Who is eligible for closing cost assistance? 

Eligibility varies by program, but most are designed to assist low- to moderate-income individuals and families. Other factors, such as credit score, U.S. residency, and sometimes being a first-time homebuyer, also play a role.

Can closing cost assistance be used with any type of mortgage? 

While closing cost assistance can be used with many types of mortgages, it’s not universally applicable. Some programs are tied to specific mortgage types, so it’s important to understand the terms of the program you’re applying to.

Do I have to repay closing cost assistance? 

Whether the assistance needs to be repaid depends on the specific program. Some programs offer grants that do not need to be repaid. Others provide zero-interest loans that need to be repaid when you sell or refinance the home.

Can I apply for more than one closing cost assistance program?

Yes, it’s often possible to apply for and receive help from multiple sources. However, you should always double-check the stipulations of each program, as some might have restrictions.

What happens if I'm denied closing cost assistance? 

If you’re denied, it’s important to understand why, so you can improve your chances in the future. Sometimes, you can work with a housing counselor or take a homebuyer education course to better prepare yourself for the application process.

Is there FHA closing cost assistance?

There’s no specific program offering FHA closing cost assistance. However, many of the down payment and closing cost assistance programs offered at the state and local levels can be used with an FHA loan. For more information about closing cost assistance in your area and whether it can be used with FHA, contact a local lender or reach out to your state housing finance authority.

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. Combining closing cost assistance with today’s low-down-payment loans could make buying your first home easier than you think.

If you’re ready, talk with a local mortgage professional to see what assistance programs you qualify for.

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Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.
Ryan Tronier
Updated By: Ryan Tronier
The Mortgage Reports Editor
Ryan Tronier is a personal finance writer and editor. His work has been published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling, as well as the former personal finance editor at Slickdeals.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.