As a homebuyer, chances are you have a lot on your plate. Maybe you’re worried about how you’re going to save for a down payment. Or perhaps you feel like your income is too low to be able to cover mortgage payments, homeowner’s insurance, and property taxes on your dream home. You might not have a perfect credit score, and you might have no idea what might happen in the event you encounter financial hardship.
Whatever the case may be, there’s a lot to be concerned about.
The good news is that, if you’re having trouble with any of these roadblocks, you may qualify for a homeownership assistance program. Keep reading to learn about some of the more common homeowner assistance programs to see if they might apply to your personal situation.
Homeownership Assistance Programs Every Homebuyer Needs to Know
1. FHA Loan
The Federal Housing Administration (FHA) is a government agency that fits under the Department of Housing and Urban Development (HUD). The FHA offers loans, which are government-backed mortgages that help homebuyers secure properties without having to cover huge down payments. First-time homebuyers love FHA loans because you can secure them with lower credit scores and less money down.
Third-party mortgage lenders underwrite and administer these loans while the government insures them. To qualify for an FHA loan, you must have a:
- 500–579 FICO score for a 10% down payment
- 580 FICO score for a 3.5% down payment
- 38–57% debt-to-income (DTI), depending on your credit score
*Important First Step!* – If you are currently in debt, or even unsure about your DTI ratio, there is a high likelihood you aren’t going to qualify for a FHA loan right now. If this is the case, resolving your existing debt is the most important step you can take.
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2. FHA 203(k) Loan
FHA 203(k) loans help homebuyers finance the purchase and rehabilitation of a house with a single mortgage insured by the FHA. In addition to refinancing to make housing payments more affordable, homeowners can also use the 203(k) loan for home improvements.
Unlike a construction loan, part of an FHA 203(k) loan is used to buy the property or pay off an existing mortgage. The rest is put into an escrow account to cover rehab costs as the work is completed. There are two types of 203(k) loans: fixed-rate and adjustable-rate loans. If you’re interested in giving these loans a shot, talk to a mortgage servicer about which type makes the most sense for your unique situation.
- Minimum 500 credit score
- Minimum down payment of 3.5% for a credit score of at least 580; 10% for lower scores
- 31-43% DTI; higher with a higher credit score
3. USDA Loan
A USDA home loan program offers mortgages to low-income rural residents who can’t otherwise obtain conventional loans. It’s primarily designed to assist low-income renters living in unhealthy or unsafe rural conditions in purchasing a house with adequate space and modern utilities.
Applicants can choose between two options depending on their circumstances: a federal guarantee of a mortgage or a direct loan from the government. Both loans require no down payment.
To qualify, you must:
- Have a minimum 620 credit score
- Have an adjusted household income that’s equal to or less than 115% of the area median income
- Be located in a USDA-eligible area
- Have a stable job history
4. Local Homeowner Assistance Programs
Depending on where you live, you may be eligible for a number of local assistance programs that can make it easier to purchase a home. Just like there are rental assistance programs that provide emergency rental assistance to folks who are struggling to cover rent in the wake of the pandemic, the Consumer Financial Protection Bureau (CFPB)—which is loosely affiliated with the U.S. Department of the Treasury—offers a Homeowners Assistance Fund (HAF) similarly helps folks impacted by the coronavirus make mortgage payments and pay utility bills.
To learn about state programs administered in your area, contact your state housing finance agency or state HUD office and see whether you qualify for the HAF program.
Besides providing housing programs, HUD also funds housing counseling programs throughout the country. In these programs, housing counselors provide guidance on many housing-related topics, including home buying. Eligibility requirements vary by program, so be sure to research your options.
5. VA Loan
One of the most useful military benefits is the VA home loan (also known as the Department of Veterans Affairs home loan). If you qualify, you can buy or build a house or refinance an existing mortgage with no down payment, great rates, and no cap on financing.
Veterans and active service members who qualify are able to take advantage of one of their most valuable benefits, making it an easy decision over other more traditional mortgage types. Simply put, veteran and active-duty service members can take advantage of VA loans to make home-buying more affordable.
To qualify for a VOA loan, you must meet the following criteria:
- Served in the military on active duty for at least 90 days
- Be a member of the National Guard or Reserves for at least six years
- During peacetime, have served at least 181 days on active duty
- Completed 90 days of cumulative service under Title 10 or Title 32. A minimum of 30 consecutive days of service is required for Title 32 service.
- Be a spouse of a military service member who has died on duty, or who has been disabled on duty.
To learn more about VA loans, visit benefits.va.gov/homeloans.
6. HomePath Ready Buyer
By selling properties it owns on the HomePath market, Fannie Mae aims to help stabilize neighborhoods and ensure families find their perfect homes.
Fannie Mae HomePath properties are those acquired through foreclosure or deed instead of foreclosure. Freddie Mae offers this loan program in which buyers cover a 3% down payment and receive a credit of 3% toward their closing costs.
How can you qualify for the Fannie Mae HomePath loan? You must be a low-income borrower, have a credit score of at least 620, and have a maximum DTI of 36%. Plus, you must have limited cash to qualify for a down payment and be a first-time homebuyer. Even if you’ve owned a home before, you can still qualify, as long as you haven’t owned a home in the past three years.
You’ll also need to hire a real estate agent and complete the HomePath’s Ready Buyer program, which is an online course that covers some of the most common mortgage and homeownership topics. Despite the $75 cost of the program, Fannie Mae reimburses you when you close on a HomePath home.
7. Dollar Homes
HUD’s Dollar Homes initiative is aimed at giving low-income families the opportunity to own a home. To date, thousands of homes have been sold on this website for just $1 each.
The homes are intended to be purchased by local governments or non-profit organizations for renovation and resale. However, a HUD-approved broker can make an offer on the home, according to the HUD website.
If you’re interested in learning more about this program, make sure they are accepting applications before diving in too deep.
8. Homebuyer Dream Program
Those who qualify for the Federal Home Loan Bank of New York’s (FHLBNY) Homebuyer Dream Program (also known as the First Home Club) can receive a grant of up to $9,500 toward a down payment and closing costs. The program is available to eligible first-time home buyers who are purchasing a home through a community-based lender.
Through this program, eligible applicants can seek financial assistance to pay the upfront costs of homeownership, such as the down payment, closing costs, and prepaid items required to become homeowners.
To qualify for the Homebuyer Dream Program, you must:
- Be a first-time homebuyer
- Have a total household income that’s at or below 80% of area median income
- Make a minimum equity contribution of $1,000 towards the purchase of an eligible property in the FHLBNY District
- Complete homeownership counseling
- Sign a 5-year retention document at closing
If you don’t live in New York, you might be able to qualify for similar programs in your own state. For example, there’s the California Mortgage Relief Program, which gives HAF funds to folks who qualify.
9. Energy Efficient Mortgage
Often referred to as a green mortgage, energy-efficient mortgages give you the opportunity to finance and pay for energy-efficient improvements. EEMs are available in conventional, FHA, and VA mortgage formats, which include funds that can be used to make energy-saving improvements to your home. Unfortunately, you can’t use this money to cover past-due mortgage payments.
You can use the energy-efficiency mortgage program to enhance your borrowing power by receiving loans that cover the costs of installing energy-saving features in new or existing homes. Buyers can take advantage of this opportunity by obtaining a government-backed or conventional mortgage to help purchase or refinance a home (e.g., a reverse mortgage).
You can qualify for an EEM by having:
- A 3% minimum down payment
- A credit score of 620 or higher
- A DTI ratio of 45% or lower
- A steady and reliable income
10. Freddie Mac’s Home Possible
Freddie Mac Home Possible mortgages are designed to help low-income borrowers who might not otherwise be able to qualify for home loans. With a Home Possible loan, you only need a 3% down payment and a 660 credit score to become a homeowner.
The Freddie Mac Home Possible program offers a variety of options to suit the needs of borrowers. The program provides low down payment options and flexible sources of down payment funds for people whose income is 80% or less of the area median income.
Believe it or not, there’s no need to cover the 3% down payment yourself with Home Possible. It may be possible to receive funds from a down payment assistance program or even as a gift from a family member. Though Freddie Mac backs this loan program, it doesn’t lend the money itself.
Private lenders originate Home Possible loans, so borrowers can compare interest rates and mortgage lenders before making a decision.
The qualifications for the Home Possible mortgage are:
- A credit score of 660 or higher
- A DTI ratio of 43% or lower
- A minimum 3% down payment
- Proof of stable employment and income
- A combined income for all borrowers of no more than 80% of the area’s median income
11. National Homebuyers Fund
The National Homebuyers Fund was founded in 2002. Under this program, first-time and repeat homebuyers can receive closing costs and/or down payment assistance.
The NHF can provide assistance up to 5% of the amount of your mortgage loan. For example, if you get a $250,000 mortgage, the NHF might give you up to $12,500 as a grant or forgivable loan.
The requirements to secure an NHF loan are flexible, including FICO scores and DTI ratios. You also don’t have to be a first-time homebuyer to qualify. Plus, there are generous income limits, which may be higher than you might expect. To get an NHF loan, you must work with a participating mortgage lender.
12. Good Neighbor Next Door HUD Loan
Individuals working in specific public service jobs can purchase qualified homes at a discount with HUD’s Good Neighbor Next Door (GNND) program. The public service category includes law enforcement officers, teachers, firefighters, and emergency medical technicians (EMTs).
With GNND, you can purchase HUD homes in revitalization areas at a 50% discount. No, this isn’t one of those scams. HUD homes are single-family homes acquired by the HUD after they have been foreclosed on by an FHA lender. In addition to promoting homeownership, GNND strives to strengthen communities.
Here are other qualifications for the program:
- Prior to bidding on a property in the program, neither you nor your spouse must have purchased a Good Neighbor Next Door home.
- As a law enforcement officer, teacher, firefighter, or EMT, you must certify that you intend to continue working in the field after purchasing the home.
- For three years, you must own and live in the home as your sole residence, and you must certify that you do so each year. Each year, HUD mails a certification to the homeowner, who signs and returns it.
13. Native American Direct Loan
Those who wish to purchase, construct, or improve a home on federal trust land can apply for a Native American Direct Loan Program. One caveat: You must live in the home as your primary residence. The program can also be used to refinance an existing Native American Direct Loan.
To qualify for this loan, Native American homebuyers must be:
- Veterans (including reserve and National Guard members who were called to active duty)
- Active duty service members
- Current reserve and guard members (usually after six years of reserve service)
Also, you must be a member of an American Indian tribe or Alaskan Native village, a Pacific Islander, or a member of a Hawaiian tribe. Alternatively, you must be married to someone who meets these requirements.
Additionally, you’ll need to obtain a Certificate of Eligibility (COE). Through the Automated Certificate of Eligibility (ACE) program, you can get one from VA or from a lender.
Which program works best for you?
As you can see, there’s no shortage of homeowner relief programs designed to help people like you achieve the American dream without hardship.
If you’re interested in securing relief or mortgage assistance, expect to go through a lengthy application process. But once you’re approved, that process will be entirely worth it once the money rolls in.
Whatever you decide, here’s to making the best choices as a hopeful homeowner!