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Loans

Loans2018-06-14T06:25:33+00:00
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Mortgages

If you are seriously considering homeownership you need to get serious about researching and understanding mortgage rates, terms, and home loan options. The decisions you make about your loan program, term and interest rate will impact you for a very long time. This decision will determine how much total interest you will pay, if and when the rate can adjust and how much your total payment will be on a monthly basis.

Choosing the right mortgage is the second most important decision you make. It is a close second to choosing the house you buy.  Once you have closed on your loan you can’t easily or inexpensively undo your decision, so you need to choose carefully and make an informed decision. Prior to picking a loan you have a few decisions to make about whether or not the loan is fixed or adjustable and the length of the loan term.  Read on to learn more about these terms.

Types of Mortgages

The interest rate on a fixed rate mortgage does not change unless you are late on your house payment, while an Adjustable Rate Mortgage (ARM) can and typically does adjust over time depending on changes in the financial markets and how long you have been in the loan.

It is not fair to make general statements that one type is better than the other because it all depends on your personal needs, how long you intend to keep the loan, and market conditions. You definitely need to consult a reputable mortgage lender to determine which financing option is best for you.

Fixed Rate Mortgage

A fixed rate mortgage is by far a more common choice for first-time homebuyers because they are less risky and provide more predictable house payments over time. Fixed rate loan programs offer borrowers a peace of mind knowing that their monthly principal and interest payment won’t change. If you don’t want additional risk in your life and you intend to stay in the home for a longer period of time, a fixed rate loan is probably your best bet. The tradeoff though is that the going rate on a fixed rate is often, but surprisingly not always, higher than an Adjustable Rate Mortgage.

Adjustable Rate Mortgage (ARM)

An ARM is a good option to consider depending on current interest rates, your tolerance for risk and how long you plan on keeping the loan. If the rate you can get on an ARM is significantly lower than the quoted fixed rate and the rate will not adjust before you need to sell or refinance, then it could very well make sense to talk to your lender about whether an ARM is a good fit for you.

Before you make a choice between a fixed rate and ARM loan, you will need to work with a lender to make sure you fully understand the differences between your loan options to ensure you make an informed decision that best meets your needs.

Loan Term

The maximum length of time you will have to repay the loan is your loan’s term. The longer you have to repay the loan the lower and more affordable the monthly payments. The shorter the term, the less interest you will have to pay over the life of the loan. A shorter loan term usually means a lower interest rate as well. Loan terms are usually expressed in years, such as 40, 30 or 15 year term with 480, 360, or 180 total monthly payments respectively.

The most common choice for most first-time homebuyers is a 30 year loan term.   That is because the payments on a 15 year loan are oftern too high to be affordable. The 30 year loan is still by far the most common. You will need to consult your lender to sort out which loan term is the best option for you given your personal situation.

Home Loans

There are many loan options to compare and consider for your first loan, such as, a Conventional, FHA, VA, or USDA insured loans. To make matters even more complex, if your qualify, you can even layer most loan programs with a below-market rate or Mortgage Credit Certificate (MCC) from your State Housing Finance Agency (HFA). So, as you can see, sorting through your financing options is complicated. Your eligibility for the programs can be impacted by your income, the location of where you want to buy, your credit score, and many other factors.

Selecting the right and experienced mortgage lender will be critical in helping you sort through your financing options prior to making a final decison. To get you started though, here are some are some of the best home loan options for first-time homebuyers.

The Approval Process

To get pre-approved you will likely need to provide your lender the following documents:

  • Three years of federal tax returns
  • Current pay stubs for the past month
  • Checking and savings statements for the past two months
  • Proof of other sources of income
  • List of your current debts and balances
  • A completed loan application
  • Proof of your down payment
  • Gift letters from anyone helping you buy your home
  • Letters to explain any negative items on your credit report
  • Proof of down payment and closing costs if you using a gift program
  • Copy of your homebuyer education certificate

Conventional Loans

A Conventional Loan is a loan product that conforms to Fannie Mae and Freddie Mac’s guidelines. Fannie Mae and Freddie Mac are nicknames for the two Government Sponsored Enterprises (GSEs) that were created by the federal government to purchase mortgage loans from lenders. After most lenders make a loan, they sell the loan to Fannie Mae or Freddie Mac. In partnership with Private Mortgage Insurance (PMI) companies, these loan types can have a low downpayment and offer good terms. In some cases the downpayment on a conventional loan can be as low as 3%.

Conventional Loans

A Conventional Loan typically refers to a loan that meets Fannie Mae and Freddie Mac standards. Fannie Mae is a nickname for the Federal National Mortgage Association (FNMA) and Freddie Mac is a nickname for the Federal Home Loan Mortgage Corporation (FHLMC). The two agencies are a creation of the federal government developed to purchase mortgage loans from lenders.

Depending on the percentage of the home purchase being financed, also known as Loan-to-Value (LTV), a conventional loan borrower may or may not be required to obtain Private Mortgage Insurance (PMI). Conventional Loans with a loan-to-value over 80% l require mortgage insurance to protect the lender’s investment if a borrower is not able to repay the loan.

Benefits of a Conventional Loan

A Conventional Loan has a lot to offer first-time homebuyers. Here are just some of the benefits of a Conventional Loan:

  • Low down payments as low 3.0% of the purchase price
  • Available in all 50 states and from nearly all lenders
  • Flexible ways to pay or finance the private mortgage insurance
  • Lower mortgage insurance premiums for high credit score borrowers
  • Seller is permitted to pay homebuyer’s closing costs
  • No income limits to meet
  • May be easier to cancel mortgage insurance if you have enough equity
  • Automated underwriting makes loan review quick and easy

Eligibility for a Conventional Loan

Conventional Loans are typically a bit harder to qualify for than an FHA, VA, or USDA loan, but the benefits of a Conventioal loan can be worth it. Conventional loans are more likely to require higher credit scores, more cash to be invested or saved and lower overall monthly payments. While it is possible to still qualify for a Conventional loan with a lower credit score, your mortgage insurance premiums will be higher and your interest rate may be higher as well. Your lender will want to see that your housing and other debt payments are not more than around 41% of your gross monthly income (before taxes).

Conventional and State Bond

It is possible to get a Conventional loan that is combined with your local Housing Finance Agency’s lower rate. Depending on the interest rate of your state’s first-time homebuyer loan program, this could be a very good option to explore. Of course, you can also get a market-rate Conventional loan. Do shop around though as Conventional loan rates, like most loan rates, differ and the maximum rate lenders charge does too. By choosing to work with a lender who specializes in offering your local state bond program you are more likely to get a great rate if you qualify.

Conventional Fees

In general, the fees on a Conventional loan will be very competetive if you shop around. A Conventional loan with a loan-to-value (LTV) of over 80% will require private mortgage insurance (PMI). One nice feature of getting a Conventional loan is that you will have a variety of options to either select a monthly premium plan or select a so called “No MI” rate where the cost of the mortgage insurance is built into the rate. Most Conventional loan programs also offer an up-front mortgage insurance premium as well. Of course, if you have enough savings or can borrower funds from a government loan program to make a 20% down payment, you will be able to avoid the cost of mortgage insurance entirely. Ask your lender to tell you more about their Conventional loan options to see if it is a good fit for you.

CRA Home Loan Programs

Federally regulated banks are required to make an effort to lend to low and moderate income clients in their service area as a part of the Community Reinvestment Act (CRA) of 1977.  As a result, most of the larger federally regulated banks and mortgage lenders in our country have created CRA home loan programs.   These CRA home loan programs offer those who meet the required income limits savings, flexibility, exceptional terms and other benefits making these financing options worthy of their consideration.

CRA Home Loans

A CRA home loan is originated by a federally regulated bank or mortgage lender that is obligated to meet the requirements of the Community Reinvestment Act (CRA) of 1977. Some banks refer to these loan products as “portfolio loans.”   Typically the largest of the federally-regulated banks have created special CRA home loan programs that are designed to meet the needs of low and moderate income households in their service area.

Benefits of a CRA Home Loan

CRA home loan programs are not the same from one bank to the other and so the benefits of the various programs vary considerably as well.  In general, however, they are usually great home loan options for for first-time home buyers to know about and to research when considering their home loan options.

Here are just some of the typical benefits you will find with a CRA home loan:

  • Lower down payment requirements
  • Lower or no mortgage insurance premiums
  • Don’t need to be a first-time home buyer
  • No income limits if you buy in a low to moderate income area
  • Seller can pay your closing costs
  • Lower minimum credit score
  • Flexible underwriting
  • Compatible with down payment assistance programs
  • Compatible with a gift from a family member or friend
  • Available in all 50 states

Eligibility for a CRA Home Loan Program

To be eligible for a CRA home loan program the following are some examples of typical requirements across the various programs:

  • You must be low or moderate income (earning 80% or less than the area median) or that the property is located in a low to moderate income census tract.
  • You must own and occupy the home you are financing.
  • The borrower and co-borrower must complete home buyer education provided by a HUD certified housing counseling agency.

Meeting a CRA loan programs underwriting or credit standards is often easier than qualifying for other types of loans. Depending on the program, you may still qualify for an CRA home loan with a lower credit score and some lenders still allow you to build an alternate credit history if needed.

Since the lending standards are different for each lender you will need to check with each specific lender to better understand their specific requirements for the area where you want to finance and purchase your first home.

CRA and State Bond

It is not possible to combine a CRA home loan from a lender with a State Bond loan funded by a state housing finance agency.  For this reason you will have to carefully compare and select between these two great first-time homebuyer home loan options.

CRA Loan Fees

In general, the loan fees charged on a CRA home loan will be very similar to and competetive with other options.   Of course you always want to compare rates and fees of your various loan options to make sure you are paying nothing more than a reasonable fee.

Obtaining a CRA Loan

CRA home loan programs are not well marketed by the various lenders and they are not always available from all loan officers at a particular bank.  For this reason you may need seek specific CRA loan officer at the bank who you are inquiring with in order to access a CRA home loan product.

Standard FHS Loans

A standard FHA-insured loan product is traditionally one of the best types of home loans for first-time buyers. A FHA loan is insured by the Federal Housing Administration (FHA) and is orginated or funded by a private lender. While mortgage lenders do vary in how they apply FHA underwriting guidelines, FHA standards in general are more flexible than most other types of home loan programs and can be a great fit for those households with lower credit scores. FHA also has a low minimum down payment of just 3.5% (of the purchase price) and it permits a gift from a family member or the seller to pay the remaining closing costs and fees to purchase your first home. These are great features for the typical cash-strapped buyer looking to finance a home of their own.

FHA Loans

An FHA Loan is insured by the Federal Housing Administration (FHA), but the loans are made and funded by a wide variety of lenders all thoughout the United States.  With FHA reducing the lender’s risk, the lenders are willing to make low down payment loans to higher risk borrowers that they otherwise might not approve.  FHA is a good option for many first-time home buyers. The FHA loan programs are administered by the U.S. Department of Housing and Urban Development (HUD).

Benefits of an FHA Loan

An FHA loan is a great product for first-time home buyers. Here are just some of the benefits of an FHA loan:

  • Low down payment (just 3.5% of the purchase price)
  • No income limits
  • Don’t need to be a first-time home buyer
  • Seller can pay your closing costs
  • Lower minimum credit score
  • Compatible with down payment assistance programs
  • Compatible with state bond loans
  • Compatible with a gift from a family member or friend
  • Available in all 50 states

Eligibility for an FHA Loan

Qualifying for an FHA loan is often easier than qualifying for other types of loans. You may still be eligible to get an FHA loan with a credit score that is in the mid to low 600’s. You’ll pay a bit more for the required mortgage insurance if you have a lower credit score.

From some lenders it is even possible to get an FHA loan if you have not yet developed a traditional credit history.  FHA guidelines allow lenders to build an alternate credit history for a borrower who does not have an established credit history.  An alternate credit history is made by proving that you have paid other bills such as rent, utilities and insurance on time over the past 12 months. Like all loan programs, lenders will need to make sure that your monthly payments are affordable. They will want to see that your monthly housing and other debt payments are not more than 41% of your gross monthly income (before taxes).

FHA and State Bond

It very common for a first-time homebuyer to get an FHA-insured loan that is combined with their local Housing Finance Agency’s lower rate. Depending on the interest rate, your state’s below-market rate loan program is a always a very good option to explore. Of course, you can also get a market rate FHA loan from pracitically any lender. Do shop around though, as FHA loan rates differ, as well as, the fees that different lenders charge. By working with a lender who specializes in offering your state bond program, you are more likely to get a great rate if you qualify.

FHA Fees

In general, the loan fees on an FHA-insured loan will be the similar to other loan options, but the mortgage insurance may be more expensive than a conventional loan’s private mortgage insurance depending on your credit score. An FHA loan has both an up-front mortgage insurance premium and a monthly premium. If you have enough savings to make a 5%, 10% or 20% down payment, then a FHA loan may not be your best option.  If you can avoid the cost of mortgage insurance, you should do so.

If you have a higher credit score, than a Conventional Loan may be a better option. Ask your lender to compare an FHA loan with the other loan programs to see what is the best fit for you.

FHA 203k Loans

An FHA 203k Loan is like a standard FHA loan, but with this home loan program you can finance not only the purchase of the home, but also repairs to the home as well.   The FHA 203K loan is great home loan product for those who are buying a fixer upper, such as a foreclosure or other property that do not meet a lender’s standard property conditions.

FHA 203k Loans

An FHA 203k Loan is like a standard FHA loan, but with this home loan program you can finance both the purchase of the home, as well as, the repairs to the home. The FHA 203K loan is great home loan product for first-time home buyers who are buying homes that are fixer uppers such as a foreclosure or other homes that do not meet a lender’s standard property conditions.

Benefits of an FHA 203k Loan

An FHA 203k loan helps a first-time homebuyer purchase and repair a home that needs to be fixed up before it can be occupied. Here are just some of the benefits of an FHA 203k loan:

  • Finance post closing repairs needed to make a home liveable
  • Appraisal is based on the “after improved value” of the home
  • No income limits
  • Don’t need to be a first-time homebuyer
  • Seller can pay your closing costs
  • Lower minimum credit scores
  • Compatible with a gift from a family member or friend
  • Available in all 50 states
  • Great for fixer uppers

Eligibility for an FHA 203k Loan

Qualifying for an FHA 203k loan is just like getting a standard FHA loan and it is often easier to qualify than qualifying for other types of loans. You may still qualify for an FHA 203k loan with a credit score that is in the mid to low 600’s, but you’ll pay a bit more for the required mortgage insurance if you have a lower credit score. Just like qualifying for a standard FHA loan, the lender will need to make sure that your monthly payments are affordable. They will want to see that your monthly housing and other debt payments are not more than 41% of your gross monthly income (before taxes).

FHA203k and State Bond

It is uncommon to combine an FHA 203k loan with a Housing Finance Agency’s (HFA) lower rate, because most lenders and HFA’s do not typically offer this option.   It is worth checking with your state’s HFA to see if they offer this combination. Most FHA 203k loans are made from lenders who specialize in offering the program. You need to shop around though and compare your FHA 203k loan rates and fees lender rates and fees vary.

FHA 203k Fees

In general, the loan fees on an FHA 203k loan are considerably higher than other types of loan. The reason you should expect to pay a higher loan origination fee on an FHA 203k loan is because it is a lot more work for the lenders who offer the program. This is because they are not only loaning you money to purchase the property, they are also loaning and managing the money you get to fix it up. The extra paperwork, time and construction oversight offered by the lender, make this loan more expensive to administer and to get.

 HUD 184 Loans

The HUD 184 Loan is a home loan program designed specifically for Native Americans who are buying a home on or off Tribal lands. The program is also referred to as “Section 184 Loan Program” or the “Section 184 Indian Home Loan Gurantee Program.” Like an FHA loan this loan is made by private lenders, but is insured by the federal government.

To qualify for the HUD 184 Loan, the borrower must be a member of a federally recognized tribe. The program is a great option for Native American homebuyers purchasing a home on or off Tribal lands. It has a low minimum downpayment of 2.25%; it does not include a monthly mortgage insurance premium; and it has very flexible underwriting standards similar to FHA.

HUD 184 Loans
A HUD 184 Loan, also known as the Section 184 Loan Guarantee program, is a loan that is insured by the U.S. Department of Housing and Urban Development (HUD), but it is funded by a HUD 184 particpating lender.  This allows the HUD 184 lenders to be willing to make a low down payment loan that they otherwise might not be willing to make. The HUD 184 Loan may be used by members of Federally Recognized Tribes both on or off land owned by the particular Tribe. This makes the HUD 184 loan a great option for many Native American first-time home buyers since the options to finance a home on tribal lands are very limited.

Benefits of a HUD 184 Loan

Here are just a few of the benefits of a HUD 184 Loan:

  • Available on or off tribal lands
  • Low down payment of just 2.25%
  • No income limits
  • Don’t need to be a first-time homebuyer
  • Seller can pay your closing costs
  • Lower minimum credit scores
  • Compatible with down payment assistance programs
  • No monthly mortgage insurance premiums
  • Available in all 50 states

Eligibility for a HUD 184 Loan

If you are a member of a Federally Recognized Tribe you may be eligible for the HUD 184 loan. It is often easier to qualify for a HUD 184 Loan than it is to qualify for other types of loans. The HUD 184 loan can work for borrowers with a lower credit score in the mid to low 600’s. It is even possible to get a HUD 184 Loan with an alternate credit history if you do not have a traditional credit history. An alternate credit history is made by proving that you have paid other bills such as rent, utilities, and insurance on time over the past 12 months even though that is not showing on your credit report. Lenders will need to make sure that your monthly payments are affordable. They will want to see that your housing and other debt payments are not more than 41% of your gross monthly income (before taxes).

HUD 184 and State Bond

In some states it is possible to get a HUD 184 Loan that is combined with your local Housing Finance Agency’s first-time home buyer loan program. Check with the your state housing finance agency to see if you can combine your State Bond loan with the HUD 184 loan.

HUD 184 Fees

In general, the fees on an HUD 184 loan will be about the same as other loan options, but compare multiple lenders to make sure you are getting the best rates and fees. A HUD 184 loan does have an up-front mortgage insurance premium called a 1% Loan Guarantee Fee that you finance as a part of your loan, but it does not have a monthly mortgage insurance premium like FHA. Ask your lender to tell you more about the HUD 184 Loan to see if it is a good option for you.

HUD 184 Lenders

HUD 184 Loans are available from specific lenders who have been approved to offer the program. If you decide the HUD 184 Loan is a good product for you, make sure you select a lender who is approved and experienced with offering the program.

USDA Guranteed Rural Housing Loan

If you intend to buy a home in a rural area, you definitely need to check out the United States Department of Agriculture’s (USDA) Rural Housing Service.  The UDSA offers “Guaranteed” loans that are exceptional because they are 100% financing without monthly mortgage insurance premiums. While they do require an upfront mortgage insurance premium, you can finance that cost just like an FHA loan.  So if you are looking to buy a home in a rural town (typically towns of 10,000 people or less) this is a great option to consider.

USDA Rural Housing Guaranteed Loan

A USDA Rural Housing Guaranteed Loan is insured by the U.S. Department of Agriculture (USDA), but it is made by a wide variety of lenders all throughout the United States. With the USDA “Guaranteeing” the loan, participating lenders are willing to make a no down payment loan with no monthly mortgage insurance.  So if you thought 100% financing was gone, think again.  Plus the fact that there is no monthly mortgage insurance payment, makes this home loan program exceptional for home buyers in rural towns and areas! A USDA loan can also be paired with a State Bond loan.

Benefits of a USDA Loan

A USDA Rural Housing Guaranteed Loan is a great homebuying product. Here are just some of the benefits of a USDA Rural Housing Guaranteed  Loan:

  • No down payment (100% financing)
  • Don’t need to be a first-time homebuyer
  • Seller can pay your closing costs
  • Lower minimum credit scores
  • Compatible with down payment assistance programs
  • No monthly mortgage insurance payments
  • Available in all states with eligible rural areas

Eligibility for a USDA Loan

To get this loan you need to buy a home in an eligible rural area. You also have to meet the program’s income limits.  You may still be able to qualify for this loan even with a lower credit score.  Approved lenders will need to make sure that your monthly payments are affordable. They will want to see that your housing and other debt payments are not more than 39% of your gross monthly income (before taxes).

USDA and State Bond

In most states it is possible to get a USDA-insured loan that is combined with a State Bond loan from your local Housing Finance Agency. Depending on your state‘s current interest rate this could be a great combination. A USDA Guaranteed Rural Housing Loan is not as common as an FHA loan, but many lenders do offer it. Shop around though as USDA loan rates, like all mortgage rates, differ and the maximum fees lenders may charge does as well.

USDA Rates and Fees

In general, the fees on a USDA-insured loan will be about the same as other loan options, but check with mulitple lenders to make sure you are getting the best rate and reasonable fees. A USDA Guaranteed Loan does have an up-front mortgage insurance premium that you typically finance as a part of your loan, but it does not have a monthly mortgage insurance premium like a conventional or FHA loan. Ask your lender to tell you more about the USDA Guaranteed Loan to see if it is a good option for you.

USDA Direct Housing Loan

The USDA also makes loans directly to eligible homebuyers through their regional offices with a loan product referred to a their “Direct” program.   With this program, the USDA directly subsidizes the monthly interest rate for the lowest income homebuyers to be as low as one percent! While you may have to pay back the subsidized payments when you sell or refinance, with a rate that low many people who thought they could never buy a home actually can!

USDA Direct Housing Loan

The USDA also makes loans directly to eligible homebuyers through their regional offices with a loan product referred to a their “Direct” program.   With this program, the USDA directly subsidizes the monthly interest rate for the lowest income homebuyers to be as low as one percent! While you may have to pay back the subsidized payments when you sell or refinance, with a rate that low many people who thought they could never buy a home actually can!

State Bond or Mortgage Revenue Bond Loans

State Bond loans are also known as Mortgage Revenue Bond (MRB) loans. Your local State Bond Loan program can be one of the best home loan programs for qualified first-time homebuyers. A State Bond Loan typically provides eligible borrowers a below-market interest rate to purchase a home that they intend to own and occupy. You obtain this lower rate through your local Housing Finance Agency (HFA) which is most often a state-wide agency. The rate you can get with a State Bond Loan is typically below the current market rate. The mortgage rates offered by the state vary, but typically their mortgage rates are 1/2 to 3/4 of a percent below a typical lender’s rate for a 30 year fixed rate loan. That lower rate can save you thousands of dollars over the life of the loan! It may even allow you to qualify for a loan if you are having a hard time affording the payments or have limited purchasing power.

In most states the program is combined with Conventional, FHA, HUD 184, VA, or USDA loan programs. Not every mortgage lender offers the State Bond Loan so you need to carefully interview and select from the loan officers who do.

Your State

Many homebuyers do not realize how much help their very own state has to offer them when buying their first home of their own. The following are examples of the first-time homebuyer programs that most states offer such as home loan, tax credit, education, and grant programs.

Mortgage Revenue Bond “State Bond Loan” Programs

One of the best programs available throughout the United States is a Mortgage Revenue Bond (MRB) program, also known as a “State Bond” loan. Through these state-sponsored home loan programs, eligible homebuyers can obtain a below-market interest rate from their local Housing Finance Agency (HFA).  They can be paired with and FHA, USDA, or Conventional loan.

In general, to qualify for a state bond loan you must:

  • not have owned a home in the past three years (unless in a target area)
  • meet the applicable income limits which vary by county
  • purchase a home that is below the county’s purchase price limit
  • continue to occupy the home for as long as they keep the loan

While other restrictions apply and vary by state, these are the main requirements to qualify for the state bond loans in any of the 50 states. To continue benefitting from the below-market rate loan, you must occupy the property as your primary residence and if you sell it in the first nine years and your income has gone up substantially (more than 5% a year over the maximum limits) you may be required to pay a federal recapture tax to the Internal Revenue Service (IRS).

This home loan program is available in every state and it can be paired with FHA, VA, USDA and Conventional home loans products.

Learn more about the great home loan programs available from your state by clicking on the appropriate link on the left side of this page. The actual mortgage rates being offered vary and depend on current financial conditions.  For this reason the rates offered by your state may be more, or less, beneficial to you. For that reason it is important to shop and compare your financing options carefully before making a final decision.

Down Payment Assistance Programs

One of the biggest challenges for most first-time homebuyers is coming up with enough cash to cover the required down payment and closing costs.

The required cash to close can really add up. For example, with an FHA loan you may need to come up with 3.5% of the purchase price for a down payment and a few more thousand dollars for closing costs.

Fortunately, to help lower the amount of cash you need to buy a home, your state, city, county or non-profit housing agencies may offer a Down Payment Assistance Program (DAP). DAPs can significantly lower the amount of cash you need to have saved in order to purchase a home, as well as, lower your ongoing house payment to make homeownership affordable.

To qualify for these program typically the households must:

  • meet specific income limits
  • must not have owned and occupied a home in the past three years
  • must meet all other applicable program requirements

To see if your local housing agency offers a down payment assistance program in your area click on your state on the left side of this page.

Mortgage Credit Certificate (MCC) Program

As an alternative to the State Bond Loan program, a few, but not all, of the state housing finance agencies also offer a federal tax credit from the IRS known as the Mortgage Credit Certificate (MCC) Program.  The states that do offer the MCC program have an “*” after their name.

In addition to these states, some cities and counties also offer the program throughout the United States, so it is worth asking your local housing agency about the program as well.

The MCC program offers income-eligible first-time homebuyers an ongoing federal tax credit. While the precise amount of the tax credit varies by program administrator, the program provides eligible homebuyers a dollar for dollar reduction in their federal tax liability for as long as 30 years!

In general to qualify for the MCC program, a borrower must also meet the following requirements:

  • must not have owned and occupied a home in the past three years (unless buying in a target area)
  • must meet the applicable income limits which vary by county
  • must purchase a home that is below the county’s purchase price limit
  • must continue to occupy the home and keep the loan to claim the credit

Other restrictions apply and vary by the state, city and county who administer the program.

To claim the MCC tax credit you must occupy the property as your home (primary residence). Also if you sell the home it in the first nine years and your income has gone up substantially (more than 5% a year over the maximum limits) you may be required to pay a federal recapture tax to the Internal Revenue Service (IRS). Check with your state and your lender for details.

VA Home Loans

If your are a U.S. Veteran you should definitely ask your lender about federal or state VA loans that are available to you. The federal VA Loan is a great product because it is still one of the rare 100% financing loan options available to cash-strapped first-time homebuyers. Coming up with enough cash to cover the down payment and the closing costs can really add up, so by using a VA loan the amount of cash you need to close will be about as low as you can go. The rates on a VA Loan are also very comparable to standard rates offered by lenders. Of course, you always want to shop around to make sure you are getting the best rate and terms.

VA Home Loans

If your are a U.S. Veteran, first of all thank you for serving our country! As a benefit of your service, you should definitely ask your lender about your VA Loan options. The federal VA Loan is a great loan product because it is one of the rare 100% financing loan (no down payment) options available to eligible vets.

Benefits of a VA Loan

A VA loan is a great program for veterans for the following reasons:

  • No down payment (100% financing)
  • No income limits
  • Don’t need to be a first-time homebuyer
  • Seller can pay your closing costs
  • Lower minimum credit scores
  • Low monthly mortgage insurance premiums
  • Available in all 50 states

Eligibility for a VA Loan

Qualifying for an VA Loan is often easier than qualifying for other types of loans. You may still qualify for a VA Loan with a credit score that is in the mid to low 600’s.

It is even possible to get a VA loan even if you have not yet developed a credit history.  With a VA loan, lenders are also allowed to build an alternate credit history. An alternate credit history is made by proving that you have paid other bills such as rent, utilities, and insurance on time over the past 12 months. Lenders will need to make sure that your monthly payments are affordable. They will want to see that your housing and other debt payments are not more than 42% of your gross monthly income (before taxes).

VA and State Bond

In many states, it is possible to get a VA-insured loan that is combined with your local Housing Finance Agency’s lower rate. Depending on the current interest rate of your state’s homebuying program, this could be a very good option to explore. Of course you can also get a market rate VA loan from pracitically any lender. Do shop around though as VA Loan rates differ and the fees lenders charge does too.  By working with a lender who specializes in offering your local state bond program, you are more likely to get a great rate if you qualify.

VA Fees

In general, the fees on an VA-insured loan will be about the same as other loan options, but shop around to make sure. A VA loan does have an up-front mortgage insurance premium that you finance as a part of your loan plus a monthly mortgage insurance premium as well. Of course, if you have enough savings to make a 20% down payment then a VA loan is probably not your best option.  If you can avoid the cost of mortgage insurance you should. Ask your lender to tell you more about the VA loan and if it is a good option for you.

State VA Loan Programs

A few states such also have State VA programs. These program are similar to the State Bond Loan programs because they offer eligible vets a below-market rate. If you are lucky enough to be in one of these states contact your state VA program or ask your local lender to see if you qualify and if it is a good deal for you.

State VA Home Loan

A few states in the country also have State VA Loan programs.  These program are similar to the State Bond Loan programs and strive to offer qualified vets a below-market interest rate. If you are lucky enough to be in one of these states, contact your lender or your State VA office about this program to see if you qualify and if it is a good deal for you.

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