March 13th, 2018 7:23 AM by Jackie A. Graves, President
Saving for a down payment remains the No. 1 obstacle to
homeownership. However, what many people don’t know is that there are more than
2,000 down payment assistance programs available across the U.S. that may help
you buy a home sooner than you think. There are also other types of
homeownership incentives you should know about whether you need help with the
down payment or not. These programs can be as unique as the home buyers and
communities they serve ranging from grants for closing cost assistance to rehab
loans, below market-rate first mortgages, mortgage credit certificates and
Down payment assistance
program: Down payment assistance programs are normally soft second
or third mortgages or grants, providing benefits such as zero percent interest
rates and deferred payments. The assistance amounts will range from a few
thousand to tens of thousands of dollars and can be used towards closing cost
assistance, prepaids, and/or principal reductions. Most home buyer assistance
programs are provided through municipal or quasi-government agencies or
non-profits. Ask your real estate agent or mortgage lender about
programs in your area. You can also search for down payment assistance
programs at the Down Payment Resource Center.
Below-market first mortgages
(AKA First-time homebuyer programs): Many larger
housing finance agencies, particularly at the state level, offer first mortgage
or first-time homebuyer programs
to accompany their down payment assistance program(s). These programs often
offer a below-market interest rate and may even have reduced closing costs or
reduced fees. They are often funded by state housing finance agencies and may
offer rates below what the normal market can provide, helping to lower buying
costs and monthly payments.
The USDA also has two first mortgage programs for
rural areas: the Rural Direct Loan and the Rural Guaranteed Loan. These
USDA loans are primarily designed to help low-income individuals or
families purchase homes in rural areas. Funds can be used to acquire, build
(including purchase and site preparation to provide water and sewage), repair,
renovate or relocate a home. These programs allow financing of up to, and
sometimes more than, 100 percent of the selling price with no mortgage
Tax Credit or Mortgage Credit Certificate (MCC): The
MCC is a tax credit designed to help first-time home buyers qualify for a loan
by offsetting a portion of their mortgage interest on a new mortgage. Mortgage
lenders will consider the estimated monthly amount of the tax credit as
monthly income that will help a borrower qualify for a home loan. The
amount of mortgage credit allowed varies depending on the state or local
government issuing the certificates, but the IRS cap is $2,000 per
year. The buyer may continue to receive the MCC tax credit as long as they
live in the home and retain the original mortgage.
Here’s an example of how the
If a home buyer receives an MCC that offers a 30 percent credit on a $200,000
loan for 30 years with a rate of 6 percent, the allowable tax credit would be
figured as follows (all numbers rounded):
interest paid (1st year): $11,933 x MCC credit: 30 percent = Total credit:
total credit amount is greater than the IRS limit of $2,000, the home buyer
would report a $2,000 credit on their tax return.
qualifications and requirements vary, many programs are for first-time home
buyers — defined as someone who has not owned a home in three or more years.
Eligibility is most commonly based on the buyer’s income and sales price limits
which vary by city or county.
programs are for home buyers, not investors. The providers of these programs
will require that the home is used as a primary residence only.
buyers purchasing a home in areas targeted for revitalization may receive
special benefits such as higher assistance amounts, more lenient income
requirements, and if there is a first-time home buyer requirement, it may be
waived. There are often additional benefits, or even entirely separate
programs, for educators, protectors, health care workers, veterans of the armed
forces, and households with disabled members.
programs will require a little money down from the home buyer, as well as home
buyer education, especially for first-time home buyers.
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