Since the housing market crash of 2008, analysts and lawmakers have been scrambling to diagnose what went wrong, as well as make provisions to avoid another economy-devastating event.
One of the most obvious downfalls of the market was a failure to follow strict screening policies for potential homeowners. Loans were frequently issued regardless of evidence of a person’s ability to repay, which, when coupled with dishonest lending practices, led to massive numbers of defaults and bankruptcy.
Introducing Dodd Frank
In answer to the need for reformation, lawmakers passed the Dodd Frank Wall Street Reform and Consumer Protection Act, which takes effect in mid-January.
This group of new mortgage laws will provide more protection for the housing market by requiring lenders to follow certain rules in order to receive legal protection. The laws also protect consumers by addressing questionable lending practices. This all leads to the assumption that the process to home ownership will become more secure, but it doesn’t guarantee that getting a loan will become any easier.
In fact, under the Dodd Frank laws, consumers’ allowable debt-to-income ratio has increased, and lenders’ terms are likely to become more difficult to account for increased expenses.
It’s nice to know your potential mortgage will be more fair and financially stable, but what if you don’t fall under the DTI ratio or can’t save enough for a down payment?
Thankfully, there are some ways to bridge the gap between your desire to own a home and your ability to make it happen — namely, home-buying credits at both the federal and state level.
Here’s an overview of a few that you may qualify for:
- The Good Neighbor Next Door Program
This federal program provides mortgage assistance to qualifying men and women in public service careers, such as law enforcement, education, firefighting, and emergency medical response. After qualifying for up to 50% off the list price of a home, recipients of this credit must complete their qualification by making the home their main residence for at least three straight years.
- Rural Americans Housing Assistance
This program helps qualifying rural, low-income families by supplying loans and grants to help them secure and/or repair a safe and adequate home.
- Local Public Housing Agency
This program helps people living in government housing projects, who might otherwise never be able to afford their own home, apply their rent payments toward a home mortgage.
- Other HUD programs
Along with these, the U.S. Department of Housing and Urban Development (HUD) provides a number of other programs for single-parent, low-income, minority, and otherwise qualifying recipients, including two programs specifically designed for Native Americans. Check with the Federal Housing Administration for more information on the types of programs that might be available for you.
Many states provide what is known as the Mortgage Credit Certificate (MCC), or first-time buyer credit, for those who have never owned a home or haven’t purchased a new home in the last three years.
Qualifications for the MCC vary by state, including maximum income and housing status, but recipients can receive up to $8,000 in tax credits. This doesn’t help you purchase a home, but it can be applied toward your mortgage, taxes, and other fees.
Many other state and local home-buyer assistance programs are in operation, so check with your respective housing agency for more details.
Bridging the Gap
If you’ve faced discouragement in trying to afford your own home, don’t give up. Though new mortgage laws and terms might make it a little more difficult, there are still plenty of resources to help you overcome the financial obstacles in your way.
Save diligently for your down payment, pay off as much debt as possible, and take advantage of all the purchase and tax credits you can get.
Are you going to be using any of these home-buying credits this year?