Housing Assistance Options for Low-Income Households

The housing crisis started in 2007 and sent waves through the entire economy. As it dipped, people lost their jobs and became unable to make their mortgage payments. Things spiraled into an ever-worsening recession from which we’re just now starting to rebound.

Low-income households were hit especially hard by the storm. Families that could barely make ends meet suddenly had to dig into meager savings just to stay afloat. Many depended upon government subsidized housing for a place to live. Ironically, a large number of these government programs were scaled back or cancelled as a result of the hurting economy.

Fortunately, there are plenty of programs remaining. They’re just a little bit harder to find than they once were.



Mortgage assistance

Three general programs exist for low-income households in need of mortgage assistance. Each meets a specific need and all can provide serious help for a homebuying family. The three general program types are listed below:

– Grants – a program that awards free money is likely to top the list as a favorite. Government grants are sums paid to qualifying citizens in order to meet their needs. Most grants come with strings attached and you could get in big trouble if you use them for anything other than their stated purpose.

– Loans – although it’s not as appealing as receiving a grant, government loans can sometimes be extending to low-income families who want to purchase affordable housing. By circumventing private lenders, borrowers can receive funds to which they would otherwise not be entitled.

– Insurance – the last type of program is a government backing that enables a borrower to get traditional financing. When the government insures a mortgage, a private lender knows that they’re going to get paid one way or the other, so they’re more likely to extend loans to low-income borrowers.

Outside of these three categories, there are no mortgage assistance programs. All programs award grants, extend loans or offer mortgage insurance.



Assistance from the state

Low-income households most frequently look to the state for help with their housing needs. They do not always consider that their home state likely has a housing assistance budget as well. Most states will have programs to which you can apply for help.  Bad credit loans and grants could be extended to you if you qualify. Homebuyer’s education classes may be available as well.

Finding a state-offered program can be as easy as searching for it on the internet. A majority of states have multiple programs, so you may have to click through a few pages to find one that applies to homebuyers like you. When you do find it, however, information about qualifications, the application process and contact information should be readily available.

If you’re looking for one-stop shopping, try the website for the U.S. Department of Housing and Urban Development (HUD). From there you can select your state and look over the active programs. Here you should be able to identify mortgage assistance loans, grants, and insurances.

The internet is an invaluable resource for finding information about the details of your home state’s mortgage assistance programs. Since there are fewer programs than there once were, knowledge you get from word of mouth or outdated websites could be inaccurate, however. Do your research and contact a local assistance office to verify your findings.

Federal loans (FHA)

Not every program that’s beneficial to low-income households is necessarily designed for them. The Federal Housing Authority’s (FHA) loan program is a good example of that. The FHA is a body that was formed by a piece of 1934 legislation called the National Housing Act. The beauty of the loan program offered by this body is that it allows otherwise unqualified candidates to become eligible for home loans offered by approved lenders.

The FHA enables applicants with low incomes or bad credit to become eligible by insuring the loan against default. With unqualified applicants, the natural concern of the lender is that they may not be repaid for any monies they lend out. The FHA insures the loan, promising to pay the balance should the borrower default.

As a result, the FHA is not willing to vouch for just anybody. If you can’t afford a 3.5% down payment on your new home, you don’t qualify. If you can’t afford to pay the monthly mortgage, you don’t qualify either. The FHA isn’t giving away free houses. It’s simply providing an opportunity for low-income families to overcome some initial obstacles that present themselves to applicants seeking out a mortgage loan from a private lender.



Rural home loans (USDA)

Most low-income families seeking assistance with their mortgages will quickly encounter information about the Department of Housing and Urban Development (HUD). In fact, it’s been mentioned here already. But what if you don’t live in an urban area?

If you live in a rural area, you may qualify for assistance from an entirely different agency. The U.S. Department of Agriculture (USDA) has a program which offers mortgage loans to families whose income falls below specified thresholds. Loans may be made available to households with low or very low incomes. “Low” income is a combined household income that falls below 80% of the median income of the surrounding area. “Very low” falls below 50%.

You’ll sometimes hear this program referred to as Section 502.  If you meet the requirements, you may be eligible for a loan that gives you several options. Loan recipients may:

– Build a new home from scratch

– Buy an existing home

– Renovate an existing home, or

– Relocate an existing home to an entirely new location.

No matter your situation, you may be able to address it with a loan from the USDA.

There are some strict eligibility standards that must be met. This loan is extended by the federal government directly (and not just backed or insured by it). As a result, the agency wants to ensure that a) you are truly in need, and b) you can pay it back over time.

To qualify, you must not be adequately housed. You must also be able to prove that you have an income and be prepared to pay roughly 25% of that monthly income to the USDA in the form of mortgage payments. These payments can be scheduled over a term of 30 years. In cases where repayment simply cannot be made on that timeline, an absolute maximum term of 38 years could be offered.

Don’t plan on building or purchasing a mansion with this loan. They are designed to provide functional, modest housing. Nothing more.

Learn about homeownership

If you are serious about your desire to purchase a home but have questions or doubts, you should seek out a counselor. There are many counseling programs approved by HUD which can connect you to men and women that have vast knowledge about homeownership and the programs that can assist you.

Deciding which, if any, program is best for you can be accomplished more easily when you have some looking out for your best interest. Many counselors will even help you tackle issues which indirectly affect your ability to obtain a mortgage, such as your credit score and out of control debts. If possible, seek out a HUD-approved counselor.

Maybe you should be renting

Homeownership is not always a feasible option for everyone. There are times when it is just better to rent. Acquiring a decades-long financial responsibility when your financial situation is shaky is unwise. If you were to become unable to pay, you would be worse off than you are now!

If you think you should reconsider renting, don’t worry. There are programs that may help you with that as well. Section 8 assistance can provide you with housing vouchers which serve as a credit towards your monthly rent. This program can greatly reduce your monthly burden.