Low Cost Loans for First Time Home Buyers - Mortgagealmanac
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Editor’s Note: This article is a little bit out of date but we include it for reference. For personal help with your upcoming home purchase to give you current information about special programs available in your area, complete our form and click here

If you are a first-time homebuyer, or if you are homebuyer with low- to moderate-income (below 100% of your area’s median income), you may qualify for a variety of special loans designed to save you money.

Such loans may come with lower interest rates and reduced closing costs, and may require less of a down payment. In addition, underwriters for special loans acknowledges that borrowers may have credit and employment irregularities.

Special low-cost loans are available through private, non-profit and government lenders. A buyer has to know where to look.

The Mortgage Almanac wants you to find a low-cost loan. Before we tell you where to find the best loans, we want to tell you how to approach it wisely and confidently. The Almanac suggests that buyers take advantage of several counseling programs offered in Greater Boston.

Counseling programs are offered by the Housing Corp. of Arlington (648-4647), Dudley Street Initiative (442-9670), HomeBase (City of Boston 635-3582), Massachusetts Affordable Housing Alliance (728-9100), Union Neighborhood Assistance Corp. (800/967-4275), City of Cambridge (349-4600), Chelsea Restoration Corp. (889-2277), and Neighborhood of Affordable Housing (East Boston 569-3356).

Some programs are free, others have a minimal cost. Most last no longer than five weeks of once-weekly sessions. Once you are schooled in the finer points of borrowing and owning, you should be able to find a low-cost loan.

Following is a guide to low-cost loans:

Non-Profit Programs

1. Massachusetts Affordable Housing Alliance/ Massachusetts Housing Partnership. These loans, made possible by state “soft-second” subsidies, are available to borrowers with income as low as $25,450 (for a $100,000 loan), and come with below-market interest rates. The rate is fixed for the first five years of the loan, rises in years 6 through 11, and levels off through year 30. Down payment is 5 percent.

Soft seconds are available in Boston and 30 other communities statewide. Lenders include Bank of Boston, BayBank, Fleet, The Boston Company, Citizens Bank, Shawmut, and US Trust. For information call the Massachusetts Affordable Housing Alliance (617/265-8995).

2. Massachusetts Association of Community Organizations for Reform Now (617/436-7100). Below-market rates and 5 percent down payment available to persons borrowers in Greater Boston earning as little as $30,112. Lenders are Citizens Bank and Shawmut. With Citizens, $1,000 of the down payment needs to be from buyer’s funds. Shawmut requires that the 1 percent of loan amount be from buyer’s funds. Both allow the rest of the down payment to come in the form of a gift, grant, or seller assistance.

3. Union Neighborhood Assistance Corporation (617/247-0614). This non-profit agency has different loan programs set up with Fleet, Shawmut and The Boston Company.

The Fleet loan requires no down payment and no closing costs, and is available to buyers earning $28,400. The loan is at market rate.

The Shawmut loan, available to buyers earning $25,000, requires a 2.5 percent downpayment, and no closing costs, and comes with a market rate plus .375 percent. The Boston Company loan, available to buyers earning $29,4000, requires a 5 percent down payment and some closing costs, but comes with a rate one point below market.

The UNAC loans are available in Boston, Cambridge, Sommerville, Medford, Malden, Everett, Revere, Chelsea, Quincy and Lynn.

State Programs

The MCC/American Dream program provides mortgage tax credits which allow buyers to use money that would have been paid in income tax to help pay the mortgage. Under the program, the borrower receives a tax credit equal to 20 percent of the amount of mortgage interest he or she would pay each year. As a result, buyers earning as little as $30,900 may qualify for a standard-rate loan, with reduced closing costs, and a 5 percent down payment (2 percent of which can be a gift or grant). The program is provided through the joint effort of the Massachusetts Housing Finance Agency (MHFA) and the Executive Office of Communities and Development(EDCD). It is available statewide, with income restrictions ranging from $46,000 to $57,000, and home price restrictions from $111,000 to $165,000.

The program is available for condos and multi-family structures, but with increased down payment requirements.

Lenders include Abington Savings, Arbor National Mortgage, BancBoston Mortgage, Boston Federal, Cambridgeport, Citizens, The Cooperative Bank, Country Savings, Eastern, First Eastern, First Essex Savings, First NH, Flagship, Graystone, Heritage Co-Op, Leader, Lee, Plymouth Savings, Rockland Trust, Salem Five Cents, Shawmut Mortgage, Springfield Institution of Savings, Stoneham Co-Op, and US Trust.

MHFA also offers other low-cost loans, featuring 95 percent financing, reduced interest rates, 0, 1 and 2-point options, and down payment and closing cost assistance.

MHFA Rehab Loan

One of MHFA’s most popular loans is a purchase-with-rehabilitation option. Under this option, 95 percent of rehab costs may be added to the loan purchase amount.

MHFA rehab funds can be used to carry out deleading,

code compliance repairs, remodeling of baths and kitchens, structural repair, reconditioning or replacement of internal systems, external repairs, energy conservation, and improvements for disabled persons.

For instance, if you purchase an $80,000 home, and rehab costs are estimated at $30,000, your total needs are $110,000. MHFA requires a $5,000 down payment on a $105,000 loan. The agency pays out $80,000 to the seller at closing, and puts the remaining $30,000 in escrow for rehab. As you complete repairs, MHFA pays for them out of the escrow account. Repairs must be completed within 90 days.

Work write-ups, contractors bids, and disbursement schedules can be coordinated by MHFA-approved supervisors for a fee that is less than 1 percent of the loan amount, or by an independent contractor selected by the agency. For more information on MHFA’s rehab option call 617/451-3766.

Three Percent Down

Many private lenders have available for the first time loans requiring a down payment of just three percent. The mortgage is called “Fannie 97”, which refers to the quasi-public mortgage institution, Federal National Mortgage Association, which is funding the program, as well as to the plan’s 97 percent loan-to-value ratio. Greater Boston borrowers cannot earn more than $61,650 to qualify for the loan, which is available for single-family and condos, but not multi-family homes. Three-percent down loans are available through most of the state’s largest lenders. National companies handling the loan are Norwest Mortgage, PNC Mortgage, Countrywide Funding, Commonwealth United, Bank of America NT & SA, North America Mortgage, and LaSalle Talman Home Mortgage.

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