First Time Buyer?
This is an overview of the kinds of programs that historically have been available through the years. Many programs are not funded in our current (2011-2012) lending environment. Be sure to ask – as limited resources still do exist.
What kind of help is out there?
Remember buyers are eligible for help based on income and previous homeownership, this information is divided up by income eligibility ONLY. (see below for details if…)
– Your total family income is at or under 80% median for family size
– Your total family income is between 80% – 120% median family size
– Your total family income is over 120% median for family size
Income At or Under 80% of Median
For the moderate income buyer, at 80% of median income or lower, assistance can take many forms depending upon the entity (government or non-profit) providing the assistance. The typical term used is ‘down-payment assistance’ but many of these programs offer funds for not only down-payment and closing costs but also to ‘off-set’ the first mortgage thereby lowering the required monthly payments for the borrower(s). In addition, based on guidelines, many of these programs can be ‘layered’ providing even more assistance for the eligible & qualified buyer(s).
Here are a few points that are common to most programs –
1. All programs require that the borrower(s) plan to live in the property being purchased.
2. Most program guidelines have limits as to how much the borrower(s) can earn in a year and/or how much they can owe in other debt.
3. The funds may be used to reduce the amount of the first mortgage, or pay a portion of the required down payment, and to pay the buyer’s customary closing costs depending upon program guidelines.
4. Some programs require that the borrower(s) contribute a minimum percentage (usually at least 1%) of the purchase price of their own funds towards the transaction.
5. Most programs limit the assistance to a percentage of the property’s purchase price up to a maximum amount.
6. Most programs have an upper limit on the purchase price of properties purchased with this type of assistance.
7. Most programs require that the property meet a housing-quality standard and be inspected by their staff inspectors.
8. Some programs have census tract, target-area, zip-code or tenancy limitations.
9. Most programs limit the type of loan they will accept in the first position. These programs take the form of a subordinate loan, so the entity providing the assistance will have specific requirements for the first mortgage to ensure that the buyer’s are receiving the most affordable mortgage terms available to them. Some of these first mortgage choices are also great options for buyers in the 80% – 140% income category.
10. All programs will ONLY allow approved lenders to facilitate their application. This is a very complicated process so only trained and experienced lenders can participate. Bob Willett is an approved lender.
The Deferred Loan – This is the most common type of program, most usually issued by a government entity or sometimes a non-profit. Key points for this loan – which depending upon the program range from $5,000.00 to up to $100,000.00 or in some cases more, are:
1. It’s a deferred payment loan secured by a deed of trust with a loan term of usually 30 years. Deferred payment means NO payment for that 30-year loan term.
2. It accrues a simple interest of from 0% – 6%, interest payments are deferred as well. In a few programs, if the original borrower or borrowers live in the property for an extended (usually at least 10 years) period of time the entire loan and all accrued interest is forgiven – POOF you don’t owe anything.
3. The loans are usually due and payable if the home is sold or transferred from the original borrower(s), or the original borrower decides to rent the home. Of course, they are also due when the original term is up.
Non-Profit or Association Issued Payment Loan – Key points for this loan, which is usually provided by a non-profit entity to assist moderate income buyers who might not qualify for other types of assistance, include:
1. It’s a fully amortized loan secured by a deed of trust with a loan term of from 5 – 15 years, some have loan terms up to 30 years.
2. It also accrues a simple interest of from 3% – 6%, but principal and interest payments begin immediately.
3. There is usually a fixed maximum loan amount.
The Mortgage Credit Certificate (MCC) – The mortgage interest credit is intended to help moderate-income individuals afford home ownership. If you qualify, you can claim a tax credit each year for part of the home mortgage interest you pay. You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your primary residence. The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit.
Inclusionary Housing – These are specific units within a new housing subdivision that the builder is required to ‘set-aside’ for low-to moderate-income households. Most inclusionary units are awarded in a lottery to candidates who have completed an application and provide a full pre-qualification letter from an approved lender. All inclusionary housing units have deed restrictions which require the owner to only sell to another qualified lower- or moderate-income household for a period of years.
No Promises – This process is complicated and you are working with government agencies. Make sure that you work with an experienced, approved lender, like Bob, and that you talk with that lender WAY in advance of making any property decisions. Most contracts using these types of programs are written with at the very least a 45-day escrow, many with longer escrows. In addition, some program guidelines may contain recapture provisions and many have moderate to long-term deed restrictions.
Remember in the case of government assistance, most municipalities are receiving funds from the federal government through the Community Development Block Grant Program. The participating cities/counties and some non-profits receive a finite amount of money for that program for the fiscal year. Don’t assume that any of these programs are funded until your loan officer confirms the availability of funds, once they run out of money it’s gone until the next year. Most programs are re-funded in the first quarter of the year
Income Between 80% – 120% Median
For the buyer who makes more than 80% of Median income assistance usually takes the form of a government backed 1st Mortgage Loan that is usually at or a bit lower than market rate, and a ‘deferred payment” type loan that is issued through the 1st Mortgage lender to possibly offer assistance with closing costs and down payment. Some borrowers in this income bracket are also eligible for tax credits and area specific second loans. Here are some of the local loan programs.
The Mortgage Credit Certificate (MCC) – The mortgage interest credit is intended to help moderate-income individuals afford home ownership. If you qualify, you can claim a tax credit each year for part of the home mortgage interest you pay. You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit.
Income Between 120% – 140% of Median and Above
Congratulations you’re doing OK! That’s probably NOT what you want to hear. Even if you have never purchased before there are probably not many SPECIAL programs for you. Some of the 1st mortgage products with generous income guidelines may help some families. What you need to shop for is an honest loan technician who has access to many financial sources and can find the very best rate/term combination for your particular needs.
Do your research because some of the products designed for first-time buyers – like FHA, VA and CalVet – do not have the requirement that you BE a first-time homebuyer. So if you are eligible these might be loan products worth researching.
Beware, the very worst loan products – the ones that got us into the mess we are in today – have traditionally been ‘marketed’ as ‘first-time buyer’ products. Make sure you do your homework, read all the documents and ask questions. If your lender cannot answer the questions so that you can understand what you are signing, find another lender.