Programs encourage homeownership
The federal government and federally chartered companies sponsor several programs to help low-income, minority and first-time homebuyers.
Though these programs may go by differing names across the country, they all have the goal of increasing homeownership rates among groups that historically have had a tough time affording a house:
American Dream Downpayment Initiative: The program helps first-time homebuyers with down payment and closing costs, often the biggest hurdles to homeownership among people with low incomes. Though guidelines vary around the country, the grants are generally worth up to $10,000 or 6 percent of a home’s purchase price, whichever is greater, according to the federal Department of Housing and Urban Development. People who qualify for the program make 80 percent or less of an area’s median income.
American Dream Commitment: The Federal National Mortgage Association has pledged to help 6 million families, including 1.8 million minority families, become first-time homeowners before 2014 through its American Dream Commitment program. Fannie Mae is a federally chartered public company that buys residential mortgages from private lenders and packages them into mortgage-backed securities it sells to investors. The company then uses the proceeds to buy more mortgages, and lenders use the money they get to finance more mortgages. Among Fannie Mae’s goals are to use technology to reduce costs and streamline its processes.
Catch the Dream: The Federal Home Loan Mortgage Corp., also a federally chartered public company that buys mortgages from private lenders, created its Catch the Dream program to increase minority homeownership. Freddie Mac works with local lenders, nonprofit housing groups, community organizations and others in the housing industry to create education and mortgage assistance programs across the country.
Federal Housing Administration loans: The agency provides federally backed insurance on mortgage loans made through FHA-approved lenders. Depending on borrowers’ credit worthiness and income, they can make a down payment of as little as 3 percent of a home’s purchase price.
“All of our FHA borrowers are middle class or lower income,” says John Carson, regional director of the Housing and Urban Development office in Denver. “We are only allowed by Congress to insure mortgages up to a middle-income level.”
Housing counseling programs: The Department of Housing and Urban Development helps pay for housing counseling agencies across the country that can give advice on buying a home, credit problems, foreclosures and other issues.
Rural-area loans: The Department of Agriculture administers programs that require no down payment to help low-income individuals and families buy homes in rural areas.
Self-Help Homeownership Opportunity Program: SHOP gives federal money to eligible nonprofit organizations such as Habitat for Humanity; ACORN Housing Corp., affiliated with the Association of Community Organizations for Reform Now; and the Housing Assistance Council to buy home sites and help build housing for low-income people who otherwise might not qualify for home loans. Those who benefit from the program have to contribute at least 100 hours of work, oftentimes more, to build their home or others that are similar.
VA loans: The Department of Veterans Affairs offers zero-down-payment loans through private lenders for military veterans and active-duty troops who qualify. The loans have low closing costs and interest rates competitive with market rates.