What You Need to Know About Home Buying Programs

A family lays in the grass outside their new home.

Do not give up on your dream of buying your first home just because you feel that you have a problem, such as a disability or poor credit, which can make homeownership impossible. A number of home buying programs available on the federal, state and local levels can help you when you are trying to buy your first home. Sometimes, you just have to know where to look.

Credit Counseling Programs

Poor credit is the most common hindrance to would-be homeowners. A bad credit rating can make it hard to get approval for a loan, and if you do get approval, the interest rate may not be a favorable one. Fortunately, you can find ways to improve your credit through credit counseling.

There are a number of credit counseling programs throughout the United States. These programs can help you manage your money, set up budgets and even arrange payment plans with your creditors to reduce the amount you owe. A good credit counselor can put you on the road to financial well-being.

The Better Business Bureau recommends that you choose credit-counseling agencies carefully and ensure that you work with a licensed and accredited agency with a history of successfully helping clients. A good credit-counseling program may be able to help you sufficiently improve your credit within a few years. During this time, you can begin saving for a down payment because you can begin applying for mortgages once your credit score is more positive.

The U.S. Department of Housing and Urban Development

When most people think of HUD, they think of its Public Housing Program that helps people with low incomes or disabilities get into affordable apartments or rental homes. However, HUD can also help people in this bracket realize their dreams of owning a home. The agency understands that home ownership is one of the best ways to start building equity and financial security and strongly encourages those who wish to do so to apply for help through one of their many housing programs.

Some of the programs overseen and administrated by HUD include the following:

  • Federal Housing Administration mortgage loans: These mortgage loans are available with very low down payments. Credit ratings do not play as large a role in determining interest rates as they do through many other mortgage lenders, and loans are more readily available to lower-income families. Also, refinancing an FHA mortgage is easier and less expensive than it is with traditional mortgage loans.
  • American Dream Downpayment Assistance Initiative: This program authorizes up to $200 million in down payment assistance to first-time homebuyers in need each year. This program is limited to those who make no more than 80 percent of the median income for their area.
  • Energy Efficient Mortgage Program: This program provides homeowners with financing assistance to make their homes more energy-efficient. This program works in conjunction with FHA mortgage loans.
  • Good Neighbor Next Door Program: This HUD-designed program provides a 50-percent discount on housing to teachers, law-enforcement officials, firefighters and emergency medical technicians who buy homes in lower-income urban areas. To qualify, you must work full time in one of these professions. You do not need to be a first-time homebuyer but you may not own any other homes at the time of closing on your house. Also, you must agree to live in the residence for a minimum of three years.
The USDA Rural Development Housing & Community Facilities Program

While HUD handles programs to help those in urban communities, this program help those in rural areas. The mission of the Housing & Community Facilities Program administered by the USDA is to help rural residents and communities by offering loans and grants for housing and facilities. The program works in partnership with non-profit groups, Indian tribes, state and federal agencies and local communities to provide technical assistance, loans, grants and funding for the following:

  • The purchase of single-family homes
  • Apartments for low-income families and the elderly
  • Housing for farm laborers
  • Community facilities such as hospitals, schools, nursing home and fire and police stations

If you are planning to purchase a home in a rural community, some of the USDA HCFP programs you may benefit from include these:

  • Rural Housing Guaranteed Loan: Applicants with up to 115 percent of the median income for the area can get loan guarantees for housing if they can show that they have a reasonable credit rating, currently lack adequate housing and can afford to pay the mortgage, taxes and insurance on the home.
  • Rural Housing Direct Loan: This type of loan helps low-income families to purchase, build, repair, renovate or relocate homes.
  • Rural Repair and Rehabilitation Loan and Grant: This provides loans and grants to those with very low incomes so that they can repair or improve their homes or bring them up meet health and safety codes. Grants are available to those who are 62 years of age or older. Those younger must accept the low-interest loans.
  • Mutual Self Help Loans: This provides loans to low-income households to enable them to build their own homes.
  • Technical and Supervisory Assistance Grants: This program provides counseling and support to low-income rural families to guide them through the process of achieving homeownership or to help them maintain ownership of the houses they already have.
Federal National Mortgage Association, Also Known as Fannie Mae

The Federal National Mortgage Association, created in 1938 and commonly referred to as Fannie Mae, is responsible for keeping mortgage rates reasonable. This program buys mortgages from banks and packages them into mortgage-backed securities for investments. One of the terms of this program mandates that a certain percentage of Fannie Mae mortgages must serve low- to moderate-income families.

If you have the financial need, a Fannie Mae mortgage may enable to you purchase a house that you would have not been able to afford otherwise.

Veterans Administration Loans

Our nation’s veterans have given up a lot to serve this country, and our government gives back to them through a number of home buying programs and incentives. One such program is the VA Mortgage Loan. This program is part of the GI Bill of Rights and has been in place since 1944.

VA loans enable veterans to purchase houses with no money down and no need to pay private mortgage insurance. In addition, the loans come at favorable rates. Through this program, veterans can also save money on closing costs and miscellaneous fees associated with closing on a house. With these loans, if the borrower wishes to have a co-owner on the property, that person must be either a spouse or another veteran.

Veterans who are permanently disabled have additional help available to them, as they may qualify for assistance to help them modify the homes to make them meet mobility needs.

State and Local Programs

Different states and localities offer and administer different home buying programs to help first-time homebuyers. Because these programs vary from state to state and municipality to municipality, they are too numerous to list in this article. However, it is not hard to find out what is available to you.

Simply call your local government housing office and inquire about available programs in your area. These programs can range from assistance with down payments to free credit counseling.

Charitable Organizations

There are a number of charitable organizations dedicated to helping first-time homebuyers in need.

One of the most well known charitable organizations is Habitat for Humanity. This group builds affordable housing that low-income families throughout the world can purchase. Need and ability to repay a non-interest mortgage on a house determine the families chosen. According to the Home Loan Learning Center, the average selling price for a Habitat for Humanity-built house is $60,000.

There are also charitable organizations that help new homeowners with a down payment on their new home. However, Holden Lewis of Bankrate warns that these programs, while helpful, are not the soundest financial decision one can make. He states that the way these programs typically work is that they provide the funds for a down payment, but the funds are a loan that you must repay along with an administrative fee. He suggests that you may be better off saving the funds or getting an FHA loan.

Good Luck with Your Search for a New Home

We at Trusted Choice® hope that you have success finding a home buying program that will enable you to become a homeowner. When factoring in your costs, don’t forget about homeowners insurance. One of our many independent agents may be able to help you find a policy that meets both your coverage and your budgetary needs so you can be sure that you are not overpaying for a policy.

We would love to hear your success stories. Share them with us in the comments.

meg stefanac blogger

About the author: Financial blogger and business owner, Meg Stefanac, has more than 15 years experience working in the financial services industry and enjoys helping individuals make solid financial decisions. Meg has extensive experience writing about insurance and finances and is a key contributor to TrustedChoice.com.

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