BASIC: FHA Loans
If you don’t have a lot of money but do have the will and determination to buy a house in a disciplined, sensible way, take heart: The Federal Housing Authority (FHA) basically exists to serve you. The FHA offers loans to first-time buyers at very competitive, federally insured interest rates -- and is often willing to work with borrowers who can’t get conventional commercial loans because of credit problems or other reasons. The FHA requires only a 3 percent down payment and allows you to get that money from a family member, something most private lenders won’t do. Most commonly, the agency issues 30-year fixed-rate loans, but it does have other options. If you’re looking at a fixer-upper, the FHA’s 203(k) loans are designed to bundle all the borrowing for both purchase and repairs into a single loan. Of course, you have to meet certain criteria to qualify for all this Uncle Sam-backed goodness, but you should start by learning more at fha.gov or by calling (800) 225-5342.
SEMI-BASIC: Freddie and Fanny
Two of the largest sources of mortgage loans in the country are a pair of weird beasts called Freddie Mac and Fanny Mae. These massive agencies were established by the government to keep money flowing through the overall lending system. They’re considered to be the backbone of the U.S. mortgage industry. While they owe their existence to the federal government, they’re owned by private shareholders. Both have taken a severe beating in the recent mortgage-market turmoil, reporting billions of dollars in losses. However, both are still go-to sources for special loans tailored to the needs of people with low or moderate incomes. Many Freddie Mac loans, for example, are available only to people with incomes that equal a certain percentage of the median income for their area. Fannie Mae’s MyCommunityMortgage program provides loans to people who are able to make small down payments and allows some borrowers to qualify with nontraditional credit histories. (In other words, you might not have a great official credit score, but perhaps you can prove you’re a solid investment in other ways -- for example, by showing you have a good track record as a renter.)
Both Freddie Mac and Fannie Mae are fairly complicated institutions, so you should do some in-depth research on your own and consult with a mortgage broker who has experience working with these companies.
INTERMEDIATE: The Local Option
If working with huge national entities like the FHA and Freddie or Fannie seems intimidating, check out programs with roots closer to home. NeighborWorks America, a national, congressionally funded nonprofit organization, is a huge network of local affiliates designed to help people buy houses. You’ll find a community housing organization hooked into NeighborWorks in just about every city in the country. In addition to helping people get loans, these local outfits offer a wide variety of services for would-be homebuyers, from classes on real estate basics to credit-repair programs designed to help you get loan-worthy; for example, the Los Angeles Neighborhood Housing Services conducts “fast-track” classes on home buying as well as a course on how to turn a purchase into real equity. It also has an in-house realty service and its own specialized loan portfolio -- which hasn’t seen a single foreclosure in its 20 years of existence, by the way. Every midsize and major city government will also have a housing department, which is a good place to track down similar resources and know-how.
ADVANCED: The Family Option
Sometimes, help from the Feds or good-hearted local agencies still won’t get you there. However, if you’re careful about it, you might be able to pull some financial ninja moves and get that deed anyway. “I teamed up with my cousin and her boyfriend to buy property that included two rental units,” says Mike, a 33-year-old writer from Portland, Oregon. “We got an FHA loan and pooled our resources.” The brother of an editor of The Nest divided a house into 10 “shares,” which he sold to family members, essentially creating his own private-equity backing. When he flipped the house, his “investors” got paid back. Obviously, you don’t pull this kind of thing with just anyone as partners, and you’ll also need to create an LLC (limited liability corporation), hire an accountant, and define everyone’s legal rights and responsibilities. Regardless, depending on market conditions, the desired property, and who you are, a nontraditional approach might just get you into a house long before a conventional route would have.
-- Zach Dundas
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