Down payments are seen as the main barrier for first-time homebuyers, but they don’t include closing costs, the additional fees required to purchase a house.
National online lender Rocket Mortgage is trying to make the process easier by launching a new program where apartment renters looking to own can receive credits to help cover closing costs.
The program, called RocketRentRewards, provides 10% of a borrower’s yearly rent back in credits, which can be used for closing costs or a mortgage buydown, according to Rocket Mortgage Chief Business Officer Bill Banfield.
Closing costs can amount to thousands of dollars, covering taxes, appraisals, homeowner association dues, inspections, loan underwriting and title fees.
The Rocket Mortgage program provides a 10% credit based on 12 months of rent, up to $5,000, and is confirmed through a lease agreement. According to Banfield, closing costs range on average between $2,000 and $3,000.
“There’s about 100 million people in the country renting apartments or single-family homes, so we will go about documenting that for them and they can use that credit in any way,” said Banfield.
Closing costs are typically between 2% and 6% of a mortgage, according to Homes.com, and industry watchers say they’re on the rise, along with home prices and mortgage rates.
The Consumer Financial Protection Bureau launched an inquiry into excessive closing costs last year, stating they can limit homebuyers’ ability to afford a down payment. The agency, targeted for dismantling under the Trump administration, said in May closing costs are closer to $6,000.
Closing costs are negotiable though, with the ability for buyers to put some of the costs onto sellers, but only a specific amount, between 3% and 9%, depending on the type and size of the loan, according to the National Association of Realtors.
Banfield said renters pay $1,800 on average nationally, which would result in almost $2,200 credits from Rocket’s program. That lines up with February national Apartments.com data for a two-bedroom unit, where a one-bedroom is about $1,500 a month. Homes.com parent company CoStar Group owns Apartments.com.
The one-time credit applies to borrowers of conventional loans as well as government-backed mortgages through the Federal Housing Administration and Department of Veterans Affairs.
Rocket Mortgage says the credit is the first type of its kind to reward renters’ monthly payments with credits. In 2022, the FHA began recognizing on-time rental payments as a consideration for lending to a first-time buyer.
Other online lenders offer grants for first-time homebuyers to assist with various costs or a down payment. LoanDepot provides up to $9,000, Movement Mortgage offers the 3.5% down payment required for federal loans, plus closing costs, and Flagstar Bank gifts eligible buyers up to $15,000.
Banfield says Rocket Mortgage has more programs on the way.
“This is just one of the credits that we’ll give to people, at least specific to renting, and we think it makes it interesting for people to try to figure out if homeownership and moving onto the homeownership ladder is right for them,” he said.