Low-Income Home Buying Programs Explained
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“Low-Income Home Buying Programs Explained” -by Brandon Cornett
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 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 http://www.FannieMae.com
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 http://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 http://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 http://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 http://www.homeloans.va.gov
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.
* Copyright 2008, Brandon Cornett. You may republish this article if you retain the citation notes and hyperlink below.
Citation Note: This article was created by Brandon Cornett, publisher of the Home Buying Institute network of real estate websites. You can learn more or contact the author by visiting his mortgage refinance blog at http://www.mortgage-refinance-advice.com/blog/
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