Most Common Types of Assistance Programs
Down Payment Programs
These programs are normally soft second or third mortgages or grants, providing benefits such as 0% interest rates, deferred payments and forgivable loans. The assistance amounts will range from a few to tens of thousands of dollars and can be used towards closing costs, prepaids, principal reductions and/or repairs.
Restrictions are most commonly income (based on household size) and sales price limits which vary by city or county.
Affordable First Mortgages
Many larger housing finance agencies, particularly at the state level, offer first mortgages to accompany their down payment assistance program(s). These first mortgages typically offer a below market interest rate, and may even have reduced closing costs or reduced fees.
They are often funded by state housing finance agencies and may subsidize portions of the interest to offer effective rates below what the normal market can provide, helping to lower buying costs and monthly payments.
Mortgage Credit Certificates (MCC)
This annual federal income tax credit is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help qualify for a loan. Because it is a tax credit and not a tax deduction, mortgage lenders will often use the estimated amount of the credit on a monthly basis as additional income to help you qualify for the loan.
The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2,000 per year by the IRS.