Despite the many changes in home financing which have occurred during the past decade, one important fact has never changed: The government has several programs which will help first time homebuyers purchase a home.
Here is a quick summary of the major “government sponsored” home financing alternatives.
State and Local Finance Agencies. Authorized by the Federal Bond Subsidy Act, these state agencies issue bonds, which enables it to offer below market interest rates and government down payment assistance on mortgages. For example, the Virginia program (VHDA) has at times offered a grant program which can help with closing costs and a down payment. These programs can also issue Mortgage Credit Certificates, which will help defray the cost of the payment by providing a tax credit for a certain amount of interest paid.
These programs are focused upon low-to-moderate income borrowers and typically require that the home buyer has not owned a home in the past three years and also has maximum income and asset limits. For those purchasing in certain targeted areas, there may be flexibility with regard to these restrictions.
The Veterans Administration. VA loans require no down payment and no monthly mortgage insurance. Closing costs can be paid by the seller or through a lender rebate. The homebuyer must be a veteran or active military. National Guardsman and Reservists are also eligible for the program. There is no requirement for the veteran to be a first-time homebuyer and no maximum income or asset requirements. Note that the Rural Housing Service of the Department of Agriculture also offers a no-money down alternative for low-to-moderate income homebuyers in rural areas.
The Federal Housing Administration. FHA loans require a 3.5% down payment which can be met with grants through state housing agencies, if available. FHA also allows the down payment to come from a gift from a relative and closing costs can be paid by the seller or through a lender rebate. There is no requirement for the applicant to be a first-time homebuyer and no maximum income or asset requirements.
Fannie Mae and Freddie Mac. The conforming agencies both have programs designed to facilitate homeownership for low-to-moderate homebuyers. The requirements vary depending upon the agency, but generally a 3.0% down payment is required and there are maximum income requirements that vary by location. Credit score requirements tend to be slightly more restrictive under these programs, as compared to FHA and VA Loans.
And government aid for home ownership does not end with these programs. Homeowners of primary residences can deduct interest and real estate taxes from the taxes. This lowers their taxable income and thus their effective housing payment. We suggest you consult with an accountant or financial advisor to discuss all of the tax benefits of home ownership.
