Can Closing Costs Be Paid With Down Payment Assistance?

Saving for a home involves more than setting aside money for a down payment. When you finally find a property and get ready to close, you may also need to pay lender fees, appraisal charges, title services, prepaid property taxes, homeowners insurance, and other expenses.

These additional costs can catch buyers off guard, particularly first-time homebuyers who have spent years building their savings. Even if you qualify for a low-down-payment mortgage, you may still need thousands of dollars to complete the purchase.

The good news is that some down payment assistance programs can help pay closing costs, too. Depending on the program, assistance may come as a grant, a forgivable loan, a deferred-payment loan, or another form of financial support.

The important part is understanding exactly what the program covers. Not every program pays every expense, and some require you to contribute your own money. Knowing the rules before you apply can help you estimate your cash requirements and avoid surprises at closing.

Yes. Many programs allow eligible homebuyers to use down payment assistance for certain closing costs, but the specific rules depend on the program, mortgage type, and your eligibility.

For example, a state housing finance agency might offer assistance that can be applied toward both your required down payment and eligible closing expenses. Another program might limit assistance to a particular percentage of the purchase price or restrict which fees qualify.

Fannie Mae’s conventional mortgage guidelines recognize eligible grants from certain government agencies, housing finance agencies, nonprofit organizations, employers, and other approved entities as potential sources of funds for down payments, closing costs, and reserves, subject to applicable requirements. The property seller and other interested parties cannot simply provide funds under the same grant rules. Source: Fannie Mae

Before relying on assistance, ask the program administrator or lender:

• Can the funds cover both the down payment and closing costs?
• Which expenses are eligible?
• Is there a maximum assistance amount?
• Must I contribute some of my own savings?
• Will I need to repay the assistance later?

These questions can help you understand whether the program will cover enough of your upfront costs to make the purchase affordable.

Eligible expenses vary, but assistance may cover certain costs associated with obtaining the mortgage and completing the property purchase.

Common examples include:

• Lender fees: Certain loan origination or processing charges, depending on the program.
• Appraisal and credit-related fees: Eligible costs associated with evaluating the property and borrower.
• Title and settlement services: Certain fees for title searches, title services, and closing arrangements.
• Recording and government charges: Eligible fees associated with recording the transaction.
• Prepaid expenses: Certain prepaid homeowners insurance premiums, property taxes, or other permitted items.

Some programs may cover only a limited selection of these expenses. Others may allow funds to be allocated between the down payment and eligible closing costs.

Do not assume that every expense listed on your Loan Estimate will qualify. Ask your lender to review the actual fees and confirm how the assistance can be applied.

For a better understanding of what you may need to pay, read Down Payment vs. Closing Costs: How Much Cash Do You Need?.

There is no single amount that applies to every homebuyer. Assistance may be a fixed dollar amount, a percentage of the purchase price, or an amount determined by the buyer’s eligibility and the program’s funding limits.

For example, imagine you are purchasing a $300,000 home. Your down payment is 3%, or $9,000, and your estimated closing costs are $9,000.

Your total upfront requirement would be $18,000 before accounting for any other expenses or credits.

Suppose you qualify for a hypothetical assistance program providing $10,000 that can be used for both the down payment and eligible closing costs. If the full amount is approved and applied to those expenses, you would need to cover the remaining $8,000, plus any costs not covered by the program.

This is an illustrative example, not an offer from an actual assistance program. Real assistance amounts, eligible expenses, and borrower contribution requirements vary.

Use the down payment calculator to estimate your required down payment, then compare it with your estimated closing costs and any assistance for which you qualify.

Understanding how the assistance is structured matters just as much as knowing the amount. Some forms of help do not need to be repaid, while others create a future financial obligation.

1. Grants

A grant generally does not need to be repaid if you meet the program’s requirements. Grants may be offered through eligible state or local government agencies, housing finance agencies, nonprofits, or other approved organizations.

Some grants can be used for both the down payment and closing costs. However, you must confirm that the program permits both uses and that you meet its eligibility requirements.

Grants may have income limits, purchase-price restrictions, property requirements, or first-time-homebuyer conditions. Funding may also be limited, so qualifying does not always mean money will be available immediately.

2. Forgivable Loans

Some assistance programs provide money as a second loan that may be forgiven after you meet certain conditions.

For example, a program might require you to live in the home as your primary residence for a specified period. If you meet the conditions, the loan may be forgiven under the program’s terms.

If you sell the home, refinance, move out, or otherwise fail to meet the conditions before the required period ends, repayment may be required. The exact rules vary, so review the agreement carefully.

3. Deferred-Payment Loans

A deferred-payment loan may not require monthly payments while you meet the program’s conditions. However, the balance may become due when you sell the home, refinance, transfer ownership, or stop using the property as your primary residence.

These programs can reduce the amount of cash you need at closing, but they do not necessarily eliminate the cost. You need to understand when repayment can be triggered and whether the future obligation fits your financial plans.

4. Repayable Second Mortgages

Some assistance is provided as a second mortgage with repayment terms separate from your primary home loan. Depending on the program, payments may begin immediately or be deferred.

Because this type of assistance creates additional debt, ask whether it affects your monthly obligations, refinancing options, or future sale proceeds.

Before accepting any assistance, request the full terms in writing. A program’s headline amount alone does not tell you whether the money is a grant, a forgivable loan, or a debt that must eventually be repaid.

Eligibility varies by state, city, program, and mortgage lender. Some programs are designed specifically for first-time buyers, while others may be open to repeat buyers who meet the requirements.

Common eligibility factors include:

• Income: Some programs impose household income limits based on location and household size.
• Purchase price: The home may need to fall below a maximum purchase price.
• Property location: Assistance may be available only in certain counties, cities, or designated areas.
• Occupancy: Many programs require the home to be your primary residence.
• Credit and mortgage eligibility: You may need to meet the underlying mortgage program’s credit and underwriting requirements.
• Homebuyer education: Some programs require an approved education course or counseling session.
• Personal contribution: Certain programs require you to contribute a minimum amount of your own funds.

You should also ask whether assistance can be combined with the mortgage you plan to use. A program may support certain conventional or government-backed loans but not every available mortgage product.

Start by checking your state or local housing finance agency and asking participating mortgage lenders which programs are currently available. A HUD-approved housing counselor can also help you understand local options.

Sometimes, but you should not assume it will.

Even when a program allows assistance to cover closing costs, the maximum amount may be insufficient to pay every expense. Some fees may be excluded, and you may need to cover costs that arise outside the program’s permitted uses.

For example, you could qualify for $7,500 in assistance but have $10,000 in total closing costs and other upfront expenses. If the full $7,500 is eligible for your transaction, you would still need to cover the remaining $2,500, plus any other expenses not included in that assistance.

You may also need cash for:

• Moving expenses.
• Utility setup fees.
• Immediate repairs or maintenance.
• Homeowners insurance or property-tax amounts not covered by assistance.
• Any required borrower contribution.

The Consumer Financial Protection Bureau recommends estimating closing costs separately from the down payment and keeping money available for moving expenses and an emergency cushion.

Closing costs often range from approximately 2% to 5% of the purchase price, although actual costs vary by location, lender, property, and transaction. Source: CFPB

Your goal should be to cover the purchase costs without leaving yourself financially stretched after moving in.

In some transactions, you may be able to use both down payment assistance and an eligible seller contribution toward closing costs. However, the rules for each source of funds are different.

A seller credit generally helps cover permitted buyer closing costs rather than the borrower’s minimum down payment. Conventional mortgage guidelines also place limits on certain interested-party contributions, based on factors such as occupancy and loan-to-value ratio. Seller contributions cannot simply be treated as unrestricted down-payment money. Source: Fannie Mae

For example, if you qualify for an assistance program and the seller agrees to contribute toward eligible closing costs, your lender must confirm that both contributions are permitted and correctly documented.

You should also avoid assuming that a seller credit can be paid to you as unrestricted cash. Contributions must follow the mortgage program’s rules and be disclosed properly in the transaction.

Ask your lender to review the proposed assistance and seller credit together before finalizing your offer.

If you want to use assistance to reduce your upfront expenses, begin researching programs before you make an offer or commit to a mortgage.

Step 1: Estimate your total cash requirement. Calculate the down payment, estimated closing costs, and other expenses you will need to pay.

Step 2: Check local assistance programs. Start with your state housing finance agency, local government housing department, or eligible nonprofit organizations.

Step 3: Confirm eligibility. Review income limits, property-price restrictions, occupancy rules, homebuyer education requirements, and any minimum personal contribution.

Step 4: Work with a participating lender. Some programs require you to apply through approved lenders. Ask the lender which mortgage types and expenses the assistance can cover.

Step 5: Review repayment terms. Determine whether the assistance is a grant, forgivable loan, deferred loan, or repayable second mortgage.

Step 6: Submit the required documents. You may need income records, bank statements, identification, mortgage documentation, and proof of homebuyer education.

Step 7: Confirm how the funds will be applied. Before closing, ask the lender or closing agent to verify the approved amount and which expenses it will cover.

Applying early gives you more time to address missing documents, eligibility questions, or funding delays.

Down payment assistance can make buying a home more manageable by helping eligible buyers pay some or all of their required down payment and closing costs. However, the amount available and the expenses it can cover depend on the specific program.

Before applying, check eligibility, confirm which closing costs qualify, and understand whether the assistance must be repaid. Ask your lender whether you can combine it with your mortgage and any permitted seller or lender credits.

Most importantly, estimate your complete upfront costs and keep enough savings for moving, maintenance, and unexpected expenses. Assistance can reduce the cash you need to buy a home, but a financially sound purchase also requires planning for the costs that come after closing.