U.S. Department of Agriculture (USDA) Section 502 Loan Programs
- The USDA's Section 502 direct and guaranteed loan programs help low-income households buy homes in rural areas, including buying, repairing, renovating or relocating an existing home or buying, preparing and building upon a site. Direct loans are from the government for 100 percent of the value of the home for low and very low-income households, with mortgage payments based on the household's income, typically 22 to 26 percent of monthly income. Low income is defined as between 50 and 80 percent of the area median income (AMI), and very low income is less than 50 percent of AMI. Guaranteed loans are made through lenders and guaranteed by the USDA for borrowers with incomes of up to 115 percent of AMI. With both direct and guaranteed loans, the home itself must be single-family, "modest in its size and cost" and meet building codes, among other requirements.
Federal Housing Administration (FHA) Insured Mortgages
- FHA-insured mortgages jumped from 2 percent of all mortgages in 2006 to 25 percent in 2010 after the 2008 housing bust made low down-payment mortgages for borrowers with less than perfect credit scarce, both features that may be helpful for low-income borrowers. These loans allow your mortgage payment to be as high as 31 percent of your gross income or 43 percent of gross income after paying your other debts, and down payments to be as low as 3.5 percent if your credit score is at least 580. Still, these are loans extended by lenders and not a government benefits program, so there are insurance premiums, and lenders aren't required to extend loans on these terms since they must avoid defaults that might threaten their approval from the FHA to extend FHA-improved loans.
- A network of community organizations approved by the U.S. Department of Housing and Urban Development (HUD) offer housing counseling for advice on buying or renting a home and avoiding foreclosure or credit issues. HUD doesn't permit these organizations to charge for their foreclosure and homeless prevention counseling, but they can charge "reasonable and customary fees for ... pre-purchase, reverse mortgage, rental, and non-delinquency post-purchase counseling services," as long as the organization informs clients of the fees before providing services, fees are proportional to services and counselors don't charge clients who demonstrate they can't afford the fees.
Down Payment Assistance Programs
- Many financial education and other organizations partner with financial institutions and foundations to offer Individual Development Accounts (IDAs) to help low-income families save for down payments needed to purchase a home and qualify for a mortgage. These special bank accounts match your savings for a number of months if you meet the income guidelines and attend financial education classes. The Corporation for Enterprise Development website includes an online directory of organizations that offer IDA programs in the United States.
Home Affordable Mortgage Program (HAMP)
- Homeowners who have seen their income decline because of hardship, who are having trouble making their monthly mortgage payments and who meet other guidelines may qualify for the Home Affordable Mortgage Program (HAMP). This federal program establishes rules and offers lenders incentives that help these borrowers modify the terms of their mortgage to make their payments affordable and avoid foreclosure, although borrowers must still negotiate directly with their lender or servicer. Other HAMP eligibility requirements include that borrower must live in the one- to four-unit home that has the mortgage; the borrower must have received the mortgage on or before January 1, 2009 and owe no more than $729,750 on the first mortgage for a single-family home, though this limit is higher for two- to four-family homes.