Affordable Mortgages

Mortgage programs and downpayment assistance are available for those with limited income

Just about anyone can buy a home. With new low down payment mortgages, and special programs for low income households, many more families can now qualify for home mortgages. Mortgage payments are often cheaper than rent. And anyone who can scrape together enough for the down payment or qualify for a special loan with no down payment needed, can benefit from home ownership.

Affordable Housing Initiatives: First time home buyers can find help in qualifying for a home loan by visiting a local agency set up for this purpose. These agencies will counsel the potential home buyer what must be done to qualify for a loan. The counseling will include advice about credit, saving for the down payment and the loan application process. They can help those who are willing to do the necessary work to qualify for a loan.

These agencies may also help with a down payment. For low income families there are loan programs available as interest free second mortgages. These second mortgages can help cover the down payment and reduce the amount of the first mortgage. That will enable the home buyer to afford better housing.

FHA: FHA loans are available to anyone who qualifies and has the advantage of a low down payment. They do not have any income cap on the borrowers and loans are available with as little as 2.5% down. FHA loans are insured by an agency of the U.S. Government but a lending institution makes the loan such as a bank or savings and loan.

FHA loans are attractive to the home buyer because of the low down payment. The buyer may also finance part of the closing costs in the mortgage. Such closing costs may amount to another 5 or 6% of the mortgage amount.

FHA loans require that the buyer pay a fee for the government to insure the loan. Known as the upfront Mortgage Insurance Premium (MIP) it amounts to 2.25% of the loan amount. It may also be financed as part of the loan but it does not count in the loan to value calculation described above. In addition to the upfront fee you will be required to pay a monthly MIP of .50% of the loan balance.

The income and credit requirements for FHA loans are more lenient than with conventional loans. For example, your monthly housing expenses with a conventional loan may not exceed 28% of your monthly income. FHA permits housing expenses of up to 29% of monthly income. With conventional loans your total monthly debt may equal 36% of total income, but with FHA loans this ratio may be as high as 42%. In addition, FHA will tolerate less than perfect credit.

Affordable Programs from Fannie Mae and Freddie Mac: These mortgage programs are available from most local lenders. Designed for first time home buyers, school teachers, and public safety personnel, they require only a $500 payment from you. Loan amounts may be a much as 103% of the purchase price.

This mortgage requires good credit and steady employment, but if you live in certain inner city or low income areas you will get special consideration.

The mortgage insurance for these Community Homebuyer loans is paid monthly and is not added to the loan as with FHA loans.

Bond Programs: From time to time, most states and/or local county governments will offer low and middle income residents special low interest rate loans.

Names of banks and credit unions that offer this program usually appear in local newspapers. Borrowers must qualify under an FHA or Community Homebuyer programs that offers loans up to 103% of the purchase price.

In addition, the bond program offers persons with family incomes below a certain level a special interest free loan for the down payment.

Depending on the state or local government home buyers with family incomes below certain levels may qualify for an interest free loans up to 25% of the purchase price of the home.

In larger metropolitan areas there are housing assistance offices to guide you through the process. Or else, call several of your local banks or credit unions. They usually know what programs are available and will assist you with the process.

About the Author

Gary Crum is a nationally published author with over twenty five years of management experience in the banking industry. He has a BSBA in Human Resources Management from Florida State University and an MBA from Florida Atlantic University.