Mortgage loans backed by the Federal Housing Administration (FHA) help homeowners with low credit scores and small down payments who might not otherwise qualify for a mortgage. Like conventional mortgage loans, FHA loans have closing costs. But if you’re strapped for cash and don’t have a lot of savings, you might have to finance the closing costs on an FHA mortgage loan as long as you do not exceed your allowable loan to value. By rolling the closing costs into your loan, you will be paying them over the loan term instead of up front and out-of-pocket.
Calculate the total closing costs that other people can contribute. Under FHA guidelines, you can accept contributions of up to 6 percent of the home’s purchase price from the seller, points out John Councilman, a 2012-2013 Board Director of the National Association of Mortgage Brokers in an article for Bankrate.com. Family members who are willing to help also can contribute up to 6 percent of the loan's costs.
Inquire about government grants and programs in your community that offer down payment assistance to homebuyers. If you are a first-time homeowner applying for an FHA mortgage loan, get information from your lender when you go for a loan. Although programs vary and you must first qualify for a mortgage loan, down payment assistance programs usually allow you to use the money to help pay for a down payment and closing costs. Many grant programs do not require you to repay the money if you live in the home for at least the required minimum number of years.
Contact your local housing authority to learn more about loan programs for which you might qualify. Local and state housing finance authorities offer low-interest down payment assistance programs to help homebuyers who would not otherwise have the money to pay for a down payment and closing costs on the purchase of a home. In addition to qualifying for a mortgage loan, you must show that you also have enough income to make the monthly payments on the down payment assistance loan, notes the Connecticut Housing Finance Authority.
Talk to your lender about including closing costs in the loan. As long as you qualify for the higher loan amount, FHA will allow you to roll the closing fees into the loan, notes Realtor.com. You still have to come up with the minimum 3.5 percent down payment on the purchase price. Your monthly mortgage payments will be higher if you finance the closing costs by adding them to the loan amount as will the interest you pay over the life of the loan.
Ask your lender about a no-closing-cost mortgage. Although you won't have to bring any cash to the table at closing, the lender will make up for it by charging you a higher interest rate over the term of the loan. Your mortgage payment will be higher each month but it won't increase the amount of the loan principal you borrow. Not all lenders offer this option, however.
- FHA.com: Who Can Pay FHA Closing Costs and Related Expenses
- Realtor.com: Understanding FHA Loans
- Bankrate.com: 7 Things to Know About an FHA Loan
- Bankrate.com: Down Payment Assistance Is Still Available
- CHFA: Down Payment Assistance Program
- The Mortgage Reports: No More Fee? Zero-Closing-Costs Mortgages Face Extinction
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.