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Types of Mortgages >> Low-Income Programs
Low-Income Home Buying Programs
by Brandon Cornett
The phrase "low-income home buying program" covers a broad range of topics, which is why it confuses a lot of home buyers. This page will help you understand these programs, and will also point you to helpful resources where you can learn more about the programs.
Low-Income Home Buying Defined
So what is a low-income home buying program? Basically, it's any program that helps low-income buyers qualify for a mortgage loan and purchase a home. In other words, it's a program designed to assist home buyers who might not otherwise qualify for a loan.
Usually, this assistance takes place in the form of insurance. A third-party organization (such as those listed below) will insure a loan made by a mortgage lender. This makes the mortgage lender more inclined to offer the loan, despite the home buyer's low-income situation.
With that basic definition out of the way, let's look at some different types of low-income home buying programs, services and resources:
Fannie Mae & Freddie Mac
Fannie Mae and Freddie Mac are private corporations founded and sponsored by the U.S. government. Both organizations help low- to middle-income families purchase homes, and in very similar ways. Though you normally won't deal directly with these organizations, they do have a role in making mortgage loans affordable for low-income home buyers.
Fannie Mae
Fannie Mae stands for the Federal National Mortgage Association (FNMA). This organization was created by Congress in 1938. In their own words, Fannie Mae "provides financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own."
Learn more at www.FannieMae.com
Freddie Mac
Freddie Mac is the Federal Home Loan Mortgage Corporation. This organization was chartered by Congress in 1970. Freddie Mac supports the secondary mortgage market by purchasing residential mortgage loans and reselling them to investors on Wall Street. This increases the availability and affordability of home loans for low- and middle-income Americans.
Learn more at www.FreddieMac.com
Federal Housing Authority
The Federal Housing Authority (FHA) also supports low-income home buying in the U.S. The FHA was created as part of The National Housing Act of 1934. The organization supports the home financing system by insuring mortgages. In other words, they help low-income home buyers qualify for mortgage loans they might not otherwise qualify for, by insuring those loans.
Learn more at www.FHA.gov
Rural Housing Authority
The Rural Housing Authority (RHA) is another government organization that can assist low-income home buyers in certain situations. The RHA is part of the United States Department of Agriculture (USDA). Unlike the organizations mentioned previously, the RHA actually makes direct loans to home buyers, among other things. They also guarantee regular commercial loans for home buyers in rural areas.
Learn more at www.rurdev.usda.gov/rhs
Veteran's Administration Home Loans
The Veteran's Administration (VA) helps low-income home buyers (and all home buyers, for that matter) by guaranteeing loans made by mortgage lenders. The VA does not actually make direct loans. The VA home loan program is reserved for military veterans and their spouses. Applicants to the program must obtain a Certificate of Eligibility that they will in turn present to their mortgage lender.
Learn more at www.homeloans.va.gov
State-Sponsored Programs
In addition to the federal programs listed above, there are many low-income home buying programs unique to certain states. For instance, the Michigan State Housing Development Authority "makes low interest mortgage loans available through [their] network of experienced lenders." Many other states offer similar programs.
Most of these state programs operate in much the same way as the federal programs listed above -- either by (A) guaranteeing loans made by commercial lenders, (B) offering grants to qualified home buyers, or (C) making loans directly to the individual.
State programs are too numerous to list on this page. You can find out more about them by searching online for home buying programs in your state.
Brandon Cornett is the Editor of Home Buying Institute.
