Real estate has been the source of “wealth” generation for decades. There are programs out there that are NOT advertised by your realtor, loan officers, and the real estate system at large because the compensation isn’t there for those participants. MAKE SURE YOU USE THEM! These are large chunks of money for most people.
Anyway, let’s start with the backbone of society’s attempt at equitable home ownership: Fannie Mae & Freddie Mac. Most Federal / Bank Loan programs in some way “stack” on top of these.
Fannie Mae Home Ready: This program will allow you to borrow up to 97% of the home value so your down payment only needs to be 3%. It’ll also LOWER your PMI payment so the monthly payments will also be lower. It’s important to know that you are participating in this program because many State & semi-government agencies will also GIVE YOU the additional funds to cover the down payment and closing costs! More about those programs later.
Freddie Mac Home Possible: This program is very similar to Fannie Mae, but you STILL qualify for the Home Possible loan even if you already own a home! If you currently have a mortgage and plan on renting out that home, then purchase a new home to live in, you can do that with Freddie Mac Home Possible! (Note: the linked pdf is outdated and I believe this program allows for 97% LTV and 50% debt to income ratios).
There are other government entities that build on top of Fannie & Freddie. One that is widely accessible and can exist APART from Fannie & Freddie is the Chenoa Fund. Simply put, the Chenoa Fund will give you the rest of your down payment for the mortgage. They do this by giving you a “forgivable loan” (much like the PPP loans of 2020): Chenoa Forgivable Loans.
There are a LOT of programs like this. For example, most States provide their own form of assistance. Here’s a bunch for my home state of Pennsylvania. There’s one that includes a Forgivable Loan up to 5% of the purchase price: PA Forgivable KFIT Loan.
I’ll skip the “First Time Home Buyer” programs… there’s a ton out there. If you are a first time home buyer, use them! ON TOP OF these I’m telling you about here.
Many banks package all this up for you:
Bank of America: Provides $10,000 for your down payment and $7500 towards closing costs. This is probably one of the best programs currently available.
Citibank: They all do it! But this one isn’t quite as generous coming in at $5000.
Keep in mind that you can Stack these programs together! MANY people would get a home with almost no money out of pocket if they knew about all these programs.
All these programs have base line credit score requirements in the 660 range. Some people won’t qualify for these programs due to income, which is based on census tract reporting.
Some programs have NO INCOME RESTRICTIONS. Such as the Repayable Second 0% interest loan from Chenoa. Also take a look at the “Soft Second” program because that has a forgivable loans (must be FHA) for up to 115% of median area income. That’s A LOT of people… I believe a majority of people qualify for this program as most would be under 115% of median income for the area they live in (note: can’t own more than 1 other property besides the home you are buying).
Most of the other programs have a “80% of median income” for the area income limit, and some ALSO have a “must be in lower income neighborhood” requirement. Here’s how to look:
Fannie Mae Lookup Tool: Enter the address of the property / area you are looking at purchasing and the website will show you the “Home Ready Income Limit”. Easy! You cannot own multiple properties with Home Ready.
Freddie Mac Lookup Tool: Similar to Fannie Mae but has a nice link to a down payment assistance website.
LOCATION Eligibility: Many programs require that the house you are purchasing be in a “low income” or “moderate income” neighborhood. This is all relative of course! I live in Philadelphia and no one would consider the 1600 block of Green Street near the art museum, or the 1300 block of Howard Street near Fishtown to be “moderate income” and qualify for various grant programs… but sure enough, it is and does. To use this tool, enter the address and also last year’s data into the search area. Then click the Census Demographic Data gray box that appears and you’ll get a lot of interesting info… but the main one you’ll want to look at is “Tract Income Level”. If low or moderate… awesome! You qualify for various programs. If middle or high, that section of census tract doesn’t qualify. As a fun side note, this is how they determined which businesses received grants in the 2nd round of Covid related grants. If the business was located in a low or moderate income area, free money. If not, nope. That’s how we do things in ‘Merica!
On top of any grants, forgivable loans, and other things mentioned before… you can add in an additional item called a “seller’s assist”. Essentially, this is increasing the size of your mortgage by 1-6% to help cover closing costs. When calculating the time value of money (i.e. present value vs future value), typically it makes sense to hold on to the cash you would have used to pay for closing costs. BE CAREFUL! You cannot exceed your closing costs with the seller’s assist. These funds cannot go towards the down payment so if you request 4% and can only use 2%… that 2% increase in your mortgage stays and you don’t receive any benefit from it!
Most likely because there’s no money in it. The loan officers networking at realtor offices don’t make money by finding you grant programs! They also have no interest in potentially complicating / extending the process by introducing more paperwork. These programs are important though. Home ownership is within reach… if you take the free money out there.
The USA via the Federal Reserve creates money and makes it available to banks to lend through mortgages. That money / credit is created out of thin air! Always has been. But get this, The Fed purchases $40 billion per month in mortgage backed securities each month (as of this writing).
That’s right, the Fed creates money that the banks “lend” to you in the form of a mortgage via a painful underwriting process… THEN purchases those mortgages back from the banks after they’ve been “securitized / packaged” into “Mortgage Backed Securities”. The banks don’t hold the risk at all (some do, most don’t), so what was that painful underwriting process all about? Whom these bankers and society deem “creditworthy” to receive the blessings that come with “home ownership” is important.