If you're new to homeownership, or haven't owned a home in at least three years, do yourself a favor and learn about mortgage revenue bond (MRB) programs. You could end up getting a home with nothing down and a subsidized mortgage rate too.
The two biggest obstacles to homeownership -- saving up the down payment and earning enough to make the monthly payments -- are addressed by these government-created programs. If you think that owning a home will always be out of reach, check out MRBs. They may provide exactly the help you need.
Bonding with your mortgage
Homeownership is considered desirable and conducive to neighborhood stability, but it isn't possible for everyone. MRB plans were established to help make buying a home possible for more citizens. MRB funding comes from tax-exempt bonds issued by state and local governments, and the money is used to subsidize a first home purchase for qualifying buyers.
Mortgage revenue bonds: Who qualifies?
First-time homebuyers (this includes people who have not owned a home in at least three years, homemakers who owned a house with an ex but did not get it in the divorce, and other folks) with household income less than or equal to 115 percent of the median gross income for their family size can qualify for subsidized home loans. How do you know if you're eligible? Check the median household income in your area with efanniemae.com.
MRB programs can often be implemented in tandem with other community homebuyer programs. Two of these are Freddie Mac's Home Possible 97 and Fannie Mae's My Community Mortgage.
MRB fast facts
- The program is not for mansions; the amount you are allowed to spend depends on median home prices in your area. The price of a home purchased with an MRB-financed mortgage may not be greater than 90 percent of the average price of homes in your area.
- You must live in the home and it must be your primary residence.
- Your credit score, unless there is identity theft involved, will likely have to exceed 620.
- Typical guidelines require that with your payment lowered by the subsidized mortgage rate, your housing expenses can't exceed 31 percent of your gross income, and all monthly payments can't go over 43 percent. So if you have a lot of credit card or student loan debt, you may not earn enough to qualify.
- The property cannot sell for more than it appraises for, and it must pass an inspection as well.
- You might be required to keep the home for a minimum number of years or face some financial penalty. This depends on the state you are in.
- Some programs also offer grants, low- to no-interest loans, or "silent" second mortgages for down payments.
- The programs do have limits on funding each year; once the limits have been met, you'll have to wait until the next fiscal year.
Freddie's Home Possible 97 and Fannie's My Community Mortgage
These mortgage programs, also referred to as community homebuyer loans, feature less-rigid underwriting guidelines (similar to FHA loans). Otherwise, qualifying for a 97 percent mortgage would be very difficult. The loans can be combined with MRBs, getting you into a home with very little down and a low, low interest rate. Understand that:
- You only put down 3 percent for a single-family residence or condominium, or 5 percent for duplexes, triplexes, fourplexes, manufactured homes or any loan that can't be electronically underwritten (e.g. your credit report had gross inaccuracies and had to be evaluated by a human).
- Homeownership education from an approved provider must be completed.
- You must be approvedl by Fannie Mae's or Freddie Mac's standards (income, assets, job stability, credit).
- You have to be approved by a mortgage insurer, but your mortgage insurance costs less with this program.
- Standard rate-and-term refi is allowed, but cash-out refinancing is not.
What kind of mortgage rate can you get?
MRB subsidized mortgage rates are substantially lower than the standard rates everyone else is offered. In Louisiana for example, the 2010 rate on a 30-year fixed mortgage is 4.10 percent. In California, the rate on MRB loans can be anything from 3.25 percent to 5.25 percent, and this depends on which program you are eligible for (there is some trade-off between down payment assistance and interest rate subsidies). Arizona's MRB rate runs about 1 percent below market-based interest rates. If you wanted to buy your rate down permanently on a 30-year mortgage outside an MRB program, it could cost about five points. So a 1 percent reduction is a big deal.
Where can you find MRB programs?
You have to go to an MRB-approved mortgage lender and work with a specially trained loan officer. It's not hard to search online for revenue bond mortgage lenders in your state. Many of the state-sponsored websites put up links to MRB-approved lenders.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.
