What's a Low-Income Home Buying Program?


What are low-income home buying programs, and how do they help home buyers?

I get this question a lot, especially from first-time home buyers. So here's an overview of low-income home buying programs, how they work, and where you can learn more.

Generally speaking, a low-income home buying program is any program that's designed to help home buyers who may not otherwise qualify for a mortgage loan.

Normally, when you talk about such programs, you're talking about a loan that gets some form of government backing. In other words, the government backs or guarantees a loan on behalf of the home buyer who is applying for the loan. This is the essence of how most low-income home buying programs work.

When the government backs a loan for a slightly unqualified borrower, mortgage lenders will be more inclined to loan money to that borrower. The lender is comfortable doing this, because in the event that the borrower defaults on the loan, the government has agreed to back it, so the lender would still be paid.

Fannie Mae
Fannie Mae is a shortened version of Federal National Mortgage Association (FNMA). Congress created this organization in 1938. According to their website, Fannie Mae "provides financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own."

Learn more at www.FannieMae.com

Freddie Mac
Freddie Mac is a shortened version of Federal Home Loan Mortgage Corporation. Congress chartered this organization in 1970. Freddie Mac supports the secondary mortgage market by purchasing residential mortgage loans and reselling them to investors (mostly on Wall Street). This increases the availability and affordability of home loans for low- and middle-income Americans.

Learn more at www.FreddieMac.com

As a home buyer, you wouldn't normally deal directly with an organization like Freddie Mac or Fannie Mae, but they do have a role in the low-income home buying process.

Federal Housing Authority
The Federal Housing Authority (FHA) also supports low-income home buying in the U.S. This organization was created as part of The National Housing Act of 1934. The FHA insures mortgages, which helps low-income home buyers qualify for mortgage loans they might not otherwise qualify for.

Learn more at www.FHA.gov

Rural Housing Authority
The Rural Housing Authority (RHA) can assist low-income home buyers in certain situations. The RHA is part of the United States Department of Agriculture (USDA). Unlike the organizations listed above, the RHA actually makes direct loans to home buyers. They also guarantee loans for home buyers in rural areas.

Learn more at www.rurdev.usda.gov/rhs

Veteran's Administration Home Loans
The Veteran's Administration (VA) helps home buyers by guaranteeing loans made by mortgage lenders. The VA does not actually make direct loans. The VA home loan program is reserved for U.S. military veterans and their spouses. To apply to this program, one must first obtain a Certificate of Eligibility from the VA. The home buyer would then present this certificate to their mortgage lender.

Learn more at www.homeloans.va.gov

State-Sponsored Programs
In addition to the federal programs listed above, there are many programs unique to certain states. For instance, the Michigan State Housing Development Authority "makes low interest mortgage loans available through [their] network of experienced lenders." Most other states have similar programs, in one form or another.

State programs are too numerous to list on this page. To learn more about them, searching online for home buying programs in your state.

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Top 3 Reasons to Delay Purchasing a Home


So you have set aside enough funds for a down payment on a house and closing costs? And you are curious to know if there is ever a time when you shouldn’t buy? Regardless of all the benefits of buying a home, it is still a major and life changing purchase and a buyer should go forward with an cautiously optimistic but informed attitude.

An important thing to honestly evaluate before you purchase is the average appreciation rates of your local market and your own personal circumstances. Historically, the average appreciation rate for real property has been roughly 6%; however, as the nation is huge your local market appreciation rates can obviously vary. Your main objective should be to stay in your house long enough so that you are not placed in a position where you will have to sell your home at a loss. If you have to sell a home before it has appreciated enough to cover the costs and commissions of selling, you could find yourself in a serious, financial bind. This especially applies to those who buy a home with a down payment of ten percent or less. In the market of the past five years, many who purchased homes with zero down payments are finding themselves in exactly that position, basically “under” their loan.

Real estate commissions traditionally run around six percent of a home’s sales price. The seller’s closing costs generally amounts to about one and a half percent. Adding all the costs you would incur if you were forced to sell, you can see how this can easily exceed the first year’s appreciation of your home. If you made a minimal down payment (from 3% - 5%), you could actually have to come up with cash out of pocket to sell your home. In addition, if the value of the houses in your neighborhood has dropped considerably, you may also find yourself owing a deficiency judgment. A deficiency judgment is a judgment for an amount not covered by the value of the security( in this case your house) put up for a loan or installment payments. In general, with the final sale of the house, the owner is still left with a balance owing on the original amount of the loan and is liable by law to pay it. While this is the worst case scenario, it still is prudent to know that such situations can occur and realistically evaluate how you can avoid them.

The three occasions when it is much better to hold off on buying a home are the following:

New to the Area

A very good to reason to delay buying a home is if you have just moved to an unfamiliar area or region of the country. It makes sense to rent for a number of months before deciding on exactly which neighborhood you desire and can afford to live in. Often when people are too hasty to buy a home immediately, they find that they might have made a better decision if they had waited awhile and had become more familiar with the surrounding neighborhood and local community. They would have additional leisure time to evaluate home values and find the best bargain in the neighborhood they desired to live in.

Uncertain or Unstable Job Future

You could have just graduated from college or you are expecting a promotion and a transfer. Or perhaps, your company has announced an impending "restructuring” or “downsizing”. If any of these apply to your situation, it might be best to forego buying a home until your job and financial situation stabilizes. It is much easier to dissolve a lease on an apartment or condo, than to try to sell a home in a financially difficult or pressing situation.

Marital Problems

While not advertised on national real estate ads, real estate agents are often participants in the real unfolding life drama of clients who have to sell their houses due to foreclosure, divorce, and deaths in the family. One of the saddest scenarios occurs when recent former clients undergo a divorce and are forced to sell a recently purchased house. For whatever reason, many couples in marital turmoil, are steeped in denial and often decide that buying a new home may help resolve their difficulties. Perhaps it is inevitable that such problems should then occur, but selling a home before it appreciates can create an additional emotionally draining financial burden in an already difficult situation.

While this certainly isn’t meant to discourage the prospective buyer, it certainly is intended to inform the buyer of the serious decision they are about to undertake and to evaluate his or her circumstances honestly. Taking the time to be forthright at the outset will assure a purchase they will be happy with in the long run.