Regardless of where you may live, your state has an agency which is dedicated to housing and its related issues. It is these agencies which are responsible for affordable housing, community development and assistance programs.
As far as home ownership goes, the majority of these state agencies have made it their policy to ensure “decent, safe and affordable housing for low to moderate income persons.” Even though this definition is broad, it gives consumers an idea of the mission of the agencies.
Each state housing agency generally offers a variety of state assisted programs for home ownership, and each program has different rules and regulations.
There are numerous programs which are available to those wishing to purchase a home with the help of their state housing agency.
Before you can take advantage of such programs, you need to know the various types of programs out there. Each agency may have different names for such individual programs, but there are certain program concepts which seem to be prevalent among all agencies.
Perhaps the most widespread and utilized program is the First Time Homebuyer Program or Homeownership Program. This program seems to have drawn in more applicants and recipients mainly because the income limitations applied to it are more lenient than others.
In Nevada the income limits for this program for two adult individuals is $47,500 per year; the limit in Illinois is as high as $64,920. These income limits are very high when compared with those for other programs.
Another limit that is applied to this type of program is the limit on home purchase price. Once again these vary by state and region, ranging from $80,000 to $240,000.
There are other rules that must be observed by those seeking to take part in such home ownership programs. One of these is that the applicant must intend to live in the home and not rent it out. Other eligibility requirements are having a good credit rating and enough money available for the down payment and closing costs.
In some cases these fees can be added into the total loan amount, thus decreasing the amount of money needed up front.
The benefits of such programs are that the interest rates offered are often 1 to 1.5 percentage points below market average. If, for instance, the going interest rate for a 30-year fixed rate mortgage loan is 8.5 percent, you might be able to get a loan with an interest rate of around 7 percent through this program.
This would come out to a savings of $104 a month for a 30-year fixed rate mortgage on a $100,000 loan. Added up over time this can amount to a significant windfall for the homeowner.
It is important to understand that although the state housing agency sets the borrowing guidelines, it is not the lender of mortgage loans. It is left up to the lender to actually approve the loan and extend financing. Eventually the state agency will assume your mortgage from the lender/mortgage company. The agency actually will buy your mortgage from the lender that originally gave you the loan.
State housing agencies are able to buy these mortgages through the selling of bonds to the general public. In order to attract investors, the agencies are allowed to issue tax-exempt bonds.
In addition to First Time Homebuyer programs, some agencies offer additional programs that cater to different housing needs. Some programs offer down payment and closing cost assistance, borrowing incentives for constructing new homes or rehabilitating existing homes.
Agencies also may offer financing incentives to developers who will build apartment complexes that will partially house low- to moderate-income families.
Generally these programs are widely accepted and regarded as a good idea for all involved.
One potential pitfall, however, is a recapture tax. Certain users of the programs could be subject to the tax, which the government imposes to recoup some of the benefits participants received should they fail to fulfill all the program requirements. The issue is complicated, and questions regarding such a potential tax liability should be referred to the state housing agency.
To find out more about available financing programs, participating lenders and borrower guidelines, consumers should contact their local state housing agency.
The National Council of State Housing Agencies (202) 624-7710 and the Federal Information Center (1-800-688-9889 or 301-722-9000) can help find the applicable agency names and phone numbers for your area.
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Jim DeBoth is president of Mortgage Market Information Services. Address your questions to Mortgages, c/o the Chicago Tribune, Real Estate Section, 435 N. Michigan Ave., Chicago, Ill., 60611. Sorry, we cannot accept questions over the phone and will not give personal replies.
