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Affordable housing programs

Jason Naber

The dream of homeownership is more attainable than ever thanks to various affordable housing programs. Let's take a look at these programs so you can start pursuing your dream of owning a home and building wealth.

Dispelling a common myth

In years past it was often believed that you needed to make a twenty percent down payment on a home in order to obtain a mortgage. That is fortunately not true. There are several financing options that have a low or no down payment.

You may actually end up with two loans, one as your first mortgage and one to help with the down payment and closing costs.

All of the affordable housing loan options have varying guidelines for approval. Your lender will help you determine the best program for your specific needs.

Mortgage loan programs

There are five mortgage programs available to homebuyers, each with different guidelines and down payments. Let’s take a look.

Conventional loan

A conventional loan is not backed or guaranteed by the federal government and is the most common mortgage loan. It requires a minimum three percent down payment.

Portfolio loan

Portfolio loans are an in-house product of the lending institution. While the rules vary by bank, they typically have fewer fees, no mortgage insurance requirement, and a minimum three percent down payment.

Federal Housing Administration loan

An FHA loan is a government-backed home loan insured by the Federal Housing Administration. It has less-restrictive qualifications such as a low down payment and low credit score requirement. It requires a three point five percent down payment.

Rural Development loan

This loan is intended to spur homeownership in rural areas and is backed by the U.S. Department of Agriculture. There is no down payment requirement.

Veterans Affairs loan

VA loans are government-backed loans issued to qualified veterans and active servicemembers. They have no down payment or monthly mortgage insurance requirement.

Down payment and closing cost assistance

There are multiple options available to help with your down payment and closing costs. Assistance programs come in the form of:

  • A second mortgage loan, which is the most common. This loan may be interest free and deferred, or it may have a monthly payment.
  • A land subsidy via a Community Land Trust.
  • A forgivable loan, which is the least common.

These affordable housing programs have rules relating to credit score, household income, and sometimes location of the home. It’s important to work with a lender that understands and has access to these programs.

Let’s take a closer look at each of these assistance programs.

Second mortgage loan

This second mortgage loan can come from a local nonprofit or the State you are looking to purchase in.

Most consumers looking for down payment assistance use a program provided by the State as their programs are consistently funded. The states have developed down payment assistance programs to increase homeownership for people with a focus on low to moderate income.

The agencies providing the assistance are:

  • Minnesota Housing Finance Agency
  • North Dakota Housing Finance Agency
  • Wisconsin Housing & Economic Development Agency

All three agencies have interest free loans that are deferred. This means the loan is paid back when you sell, refinance or pay off the home. The amount of assistance provided varies by agency, income, and household size.

While it may be possible to purchase a home with little to none of your own funds, homeowners typically are required to contribute a minimum of five hundred dollars to one thousand dollars to the transaction depending on the state.

Again, it’s important to work with a lender that understands and has access to these programs.

Land subsidy via community land trust

Community land trust organizations are often nonprofits, though they can be backed by private firms. They often receive money from city and county governments in the form of grants. They make homeownership affordable by giving a land subsidy to reduce the cost of the purchase of a home. These programs are designed for households with low to moderate income. 

The land subsidy varies by land trust but is typically at least twenty percent down. The homeowner will get a ninety-nine-year land lease and pay a monthly lease amount of twenty dollars to forty dollars.

When the home is later sold, the equity will be distributed between the land trust and homeowner. The percentage of the distribution varies by land trust.

It’s important you work with a lender that is approved to originate loans for the Community Land Trust in your area. Now let’s take a look at the last down payment assistance option.

Forgivable loan

The forgivable loan is the least common form of assistance but does exist. Forgivable loans typically come from Neighborhood Associations. You will want to first find your home, and then find out if your neighborhood association, if applicable, has down payment assistance funds.

Work with a trusted lender to evaluate your options

With the various affordable housing assistance programs available, many people are realizing they can achieve the goal of owning a home with a more affordable payment. Remember to connect with a trusted mortgage lender to understand what programs might work for you.

Jason Naber

About Jason Naber

With more than 20 years of banking experience, Jason Naber is well versed in FHA/VA, conventional and first-time homebuyer loans, with a specialty in construction lending. He has worked with various types of borrowers, helping them build or remodel from northern Minnesota through the Twin Cities and into western Wisconsin. As a Minnesota Housing (MHFA) and Dakota County certified loan officer, Jason has the experience necessary to assist First-time Homebuyers regardless of where you are looking. 2009-2019 Bremer Mortgage Platinum Club 2013-2020 Minnesota Housing Platinum Level Top Producer 2019 & 2020 Dakota County CDA Star of the Year )

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