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Government Assistance Programs and Loans

Goal

Learn about home buying government assistance programs and their benefits and drawbacks. With included links to application sites, this all-inclusive guide will help home buyers and owners seek out financial assistance.

What is Government Assistance in Home Buying?

The Covid-19 pandemic caused many homeowners and home buyers to seek out government assistance like never before. Government assistance comes in many forms, however, this guide will narrow down homeownership programs, grants, and government-funded loans available for buyers and homeowners. These programs aim to assist buyers in various ways, such as:

  • Lowered down payment requirements
  • Lowered interest rates
  • Deferred payments
  • Loan forgiveness over time
  • Lowered credit score requirements
  • May avoid paying private mortgage insurance (PMI)

Benefits of Government Assistance Programs

Homeownership programs were created to make buying real estate more accessible. Many people who wish to buy a home, but perhaps do not have the required down payment or credit score, can benefit greatly from government assistance programs. Saving up for a down payment can take years, but buyers can purchase a home without breaking the bank with a homeownership program. There are also loans that benefit those who live in rural areas, are active duty military, veterans, low-income residents, and more.

Drawbacks of Government Assistance Programs

It’s important to understand that there can be drawbacks to assistance programs, such as:

  • Additional financial stress down the road
  • Strict eligibility requirements
  • Slower closing process
  • Residency restrictions

Keep reading to dive into various government assistance programs and who they are for.

Types of Homeownership Programs

HUD Housing

The U.S. Department of Housing and Urban Development (HUD) provides "fair and equal" housing and community development assistance. HUD makes this possible through various programs intended to:

  • Support homeownership
  • Reduce homelessness
  • Increase safe and affordable rental housing
  • Fight housing discrimination

Here are a few of their offered programs:

Good Neighbor Next Door: The HUD Good Neighbor Next Door Program offers HUD homes in revitalizing areas at a 50% discount to community workers, such as teachers, police officers, EMS personnel, and firefighters. Visit HUD.gov to learn more and submit an application.

Dollar Homes: When a homeowner defaults on an FHA-insured mortgage, it is foreclosed and repossessed by the federal government. These homes are then resold to the public at a low price. However, these homes are sold “as-is," meaning no repairs or upgrades will be made. Interested buyers can have their licensed broker or agent submit bids on Dollar Home properties through the HUD Home Store.

Homeownership Vouchers: Housing Choice Vouchers allow very low-income families, the elderly, and disabled individuals to lease decent, safe, and affordable private-owned rental housing. Families, under certain circumstances, may be able to use their vouchers to purchase a home if authorized by the Public Housing Agency (PHA). Housing types include apartments, single-family homes, and townhomes and are not limited to units located in subsidized housing projects. These vouchers determine a payment standard generally needed to rent a moderately-priced unit. The assistance amount is then calculated based on the type of housing selected. Contact your local PHA to determine if this program is offered in your area.

Freddie Mac and Fannie Mae

Freddie Mae and Fannie Mac were chartered by congress in 1970 to fund lenders in support of homeownership and rental housing. Their main mission is to provide liquidity, stability, and affordability to the U.S. housing market.

HomePath Ready Buyer: This program, administered by Fannie Mae, offers mortgage options that benefit first-time buyers with low-to moderate-income. Buyers must complete an online educational course to be eligible to receive 3% towards closing costs when purchasing a foreclosure owned by Fannie Mae. The HomePath Ready Buyer program also allows buyers to make a down payment as low as 3%. Visit FannieMae.com for more information on how to apply.

Freddie Mac’s Home Possible: Similar to the HomePath Ready Buyer program, this program is aimed at both first-time buyers and current homeowners. Freddie Mac’s Home Possible also requires applicants to complete a homeownership education program. Those who are eligible will be required to pay just 3% down at closing, along with lowered fees, compared to other loans. Buyers can visit FreddieMac.com to determine their eligibility.

Energy Efficient Mortgage (EEM)

The Energy Efficient Mortgage program is insured through both the FHA and VA and incentivizes buyers to purchase energy-efficient homes (or purchase homes that they will make energy-efficient). The main purpose of EEM is to decrease the financial burden of energy costs on homeowners, as well as increase the resale value of their properties. However, EEM is added to an existing mortgage and will not affect the down payment. Applicants are required to obtain a home energy assessment, which will determine the loan amount. Visit HUD.gov to learn more about the program and its requirements.

FHA Loans

FHA loans are offered by the Federal Housing Administration, which is backed by the government. FHA loans have become a common choice for first-time home buyers as they have lower credit score and down payment requirements. However, FHA borrowers will be required to pay PMI to protect the lender in case of borrower default. Buyers can visit FHAloans.com to determine their eligibility and apply.

FHA 203(k) Loan: The FHA 203(k) rehabilitation loan is a great solution for buyers who wish to purchase a fixer-upper. This loan assesses the home and requires specific repairs to be made first, such as removing mold, repairing broken windows, patching leaking roofs, replacing lead–based paint, and fixing missing handrails. Then, the loan bundles the home’s after-repair value with the cost of renovating the property. If the borrower needs more than $35,000 in renovations, they will be required to hire an approved consultant who will operate as the contractor and project manager. Applications must be submitted through an FHA-approved lender.

VA Loan

The VA loan is offered by the U.S. Department of Veteran Affairs and assists veterans, active service members of the military, and their eligible spouses. Unlike FHA loans, the VA loan does not require a down payment or PMI, and offers lower mortgage rates. There is also no credit score requirement, making this loan option very attainable for eligible individuals. In addition, the VA sponsors grants for veterans who need to adapt a home for service-related disabilities. Visit the VA website for more information on how to apply.

USDA Loan

Backed by the U.S. Department of Agriculture, these loans are only for low-to-moderate-income home buyers in eligible rural areas. To receive this loan, buyers’ household income cannot exceed 115% of the area's median income. This loan can also be used to repair and renovate a property, make a property energy-efficient, or install household appliances. Though this loan does not require a set credit score, lenders suggest a score of around 640 to obtain this loan. Buyers can visit the USDA website to determine their eligibility.

Conclusion

Homeownership assistance programs offer financial solutions to Americans who may otherwise be unable to afford homeownership. So, buyers and homeowners should explore their options and take advantage of what these programs have to offer. They may find that it is possible to qualify for homeownership and secure the home of their dreams.

Ready to speak with a lender? Contact HomeHunt today to be connected with a top mortgage professional and begin the home buying process!