What Are Homeownership Programs?
NOTE: Glossary words are highlighted. Click on any glossary word to see its definition.
What are homeownership programs?
Homeownership programs help low and moderate-income families buy and repair single and multi-family homes. Many of these programs are for first-time homebuyers. Homeownership programs offer different types of assistance, including:
-
Low mortgage interest rates
When you borrow money to buy a home, you must pay back the amount you borrowed and you must pay interest on your loan. Interest is the fee you pay for borrowing money. Some homeownership programs offer mortgages with interest rates that are much lower than the market rate, and some programs pay a portion of your interest for you.
-
Down payment assistance
When you buy a home, you must pay some of the cost with your own money, and you borrow the rest. The part you pay with your own money is called the down payment. Some lenders require large down payments, up to 20% of the purchase price. Low-income families often have trouble saving up enough money for a large down payment. Some homeownership programs help by allowing much smaller down payments, only 3% to 5% of the purchase price, or no down payment at all. Other programs give grants to cover part of the down payment.
-
Closing costs assistance
You must pay certain fees and taxes when you actually sign the papers to become a homeowner. These are called closing costs. Closing costs usually add up to 3% to 6% of the mortgage. It is often difficult for low-income families to save up enough to pay these costs in addition to a down payment. Some first-time homebuyer programs help by offering loans with reduced or zero closing costs. Other programs give grants to help pay the closing costs.
-
Mortgage insurance assistance
Most lenders require you to buy private mortgage insurance (PMI) if your down payment is less than 20% of the purchase price. Mortgage insurance protects the lender if you stop making payments on your loan. Private mortgage insurance requires good credit and a good income. Low-income homebuyers do not always meet these requirements. Government mortgage insurance programs help borrowers who cannot get private mortgage insurance.
-
Flexible qualifying ratios
Before approving a home loan, lenders check to make sure that you have enough income to pay your monthly expenses. Lenders add up your monthly housing expenses and your other monthly expenses (car payments, credit cards, and other debts), and compare these to your income. The comparison of expenses to income is called a qualifying ratio.
Lenders will not usually approve a loan if total housing expenses, including mortgage, taxes, and insurance, are more than 28% of monthly income. Lenders will not usually approve a loan if total debt expenses (housing plus other debts) are more than 36% of monthly income. These qualifying ratios prevent many low-income families from getting regular mortgages. Low-income homebuyers who need to spend a higher percentage of their income on housing and other expenses can get help from homeownership programs that offer flexible qualifying ratios.
-
Homebuyer education
Many homeownership programs require first-time homebuyers to take a homebuyer education course. Homebuyer education courses include information about mortgages, brokers, credit, choosing an attorney, making an offer to purchase, home inspections, closing, home maintenance, and preventing foreclosure.
-
Home repair assistance
Grants, loans, and tax credits are available for homebuyers and homeowners who want to delead their homes, make their homes more energy efficient, buy homes that need rehabilitation, or make other home repairs.
-
Tax credits for homebuyers
The government may offer substantial tax credits to homebuyers when needed to help revitalize the housing market.
Where can I get information about homeownership programs?
Homeownership programs receive funds from many sources, including local, state, and federal governments, non-profit organizations, and private businesses.
To get information about homebuyer programs, contact a non-profit homeownership agency serving your community:
Homebuyer counseling agencies usually offer credit counseling, mortgage application assistance, homebuyer financial assistance (down payments, loans, etc.), and first-time homebuyer education.
|
