Home ownership programs have been designed to help certain public servants--who aren't always the highest paid--buy homes in the communities they serve. Options range from special promotions offered by private mortgage lenders to tax breaks, down payment assistance, subsidized mortgage interest, and reduced closing cost plans administered by community organizations and government agencies. Home ownership assistance sometimes comes with income limitations or caps on how much house you can buy. Here is a run-down of the most frequently offered programs.
Private Mortgage Lenders
There is no shortage of private mortgage brokers and banks claiming to offer the lowest mortgage rates to teachers, health care professionals, or rescue and law enforcement personnel. However, calling a program a special deal doesn't necessarily make it one, according to the Rural School and Community Trust. Lenders may be full of appreciation for your profession and they may run lots of warm fuzzy ads to prove it. They may even put up Web pages that resemble official government sites. But it's still a private market, and you are advised to comparison shop with several lenders--one company's best mortgage rates for your profession may not be as good as what another lender offers everyone.
Many of these programs feature expanded qualifying guidelines, waive some fees, or add extra benefits like life insurance. Freddie Mac's Home Possible program is offered through private lenders and allows teachers, firefighters, law enforcement officers, health care workers, and members of the United States Armed Forces to finance up to 100% of the purchase price of their homes. Fannie Mae also boasts several similar programs that can be found through private lenders.
State and Local Programs
Firefighters, police, and others have access to similar programs in their states or cities. For example, in New Jersey, first responders can get a mortgage at an excellent rate--the 10-year Treasury note rate plus 1%, which totaled about 4% in 2009--at least a full percentage point lower than the market interest rate paid by everyone else. Some states provide home buying assistance to nurses and other health care workers. Alaska's program for health care and school workers finances 100% of the home and includes subsidized interest rates for lower-income applicants. You can find a list of housing agencies at the end of this article and locate programs in your state.
Most states and cities don't provide home ownership assistance to teachers, but those that do go about it in similar ways. They may offer below-market mortgage financing or partially forgivable loans, or pay closing costs for teachers in exchange for a commitment to work for a specified number of years. Others provide housing assistance to teachers who agree to work in understaffed schools for an agreed-upon time.
Mortgage Credit Certificates (MCCs)
MCCs are a creation of the IRS but differ from state to state and sometimes from municipality to municipality. They are available in many but not all areas of the country. A mortgage credit certificate enables you to buy a more expensive house with the same income. With an MCC, the IRS not only allows you to deduct your mortgage interest, but also gives you a credit against your tax liabilities. The lender subtracts that credit from your house payment when calculating your debt-to-income ratio, qualifying you for a larger loan.
In most states, MCCs are available to anyone who hasn't owned a primary residence in three years and meets income guidelines. However, some localities and states like Texas extend the privilege to teachers, police, firefighters, and EMTs.
How Do You Save with a Mortgage Credit Certificate?
Here's an example:
- You get a loan of $250,000 at 6.00% for 30 years with monthly payments of $1,499 and an MCC credit rate of 20% (MCC credits range from 20% to 35% and are determined according to where you live).
- In the first year, your interest expense is $14,916. Your federal income tax credit of 20% equals $2,983, or approximately $249 a month.
- The remaining 80% of mortgage interest, or $11,933, qualifies as an itemized income tax deduction.
- By applying the $249 increase in your monthly take-home pay towards your $1,499 mortgage payment, your effective monthly payment is $1,250 ($1,499 minus $249).
- If your lender caps your mortgage debt-to-income ratio (also known as a "front-end ratio") at a typical 28%, getting the MCC means that instead of having to earn $64,243 to qualify for your loan, you only have to make $53,571.
You must go to an approved lender and get your certificate before shopping for your home. If you refinance your mortgage, you'll need to get a reissued certificate to continue to receive your tax benefits.
HUD Good Neighbor Next Door (GNND) Program
If you're a teacher, firefighter, police officer, or EMT, neighborhoods want you living there. This program effectively takes 50% off the purchase price of HUD-owned properties in designated areas. The Good Neighbor Next Door program was created to enhance communities by helping public servants buy homes where they work. If you buy property under this program, you have to commit to living in the home for a minimum of three years.
How HUD's GNND Program Works
Homes owned by HUD due to foreclosure and located in designated Revitalization Areas are sold through the program. Revitalization Areas are HUD-designated geographic areas defined under the National Housing Act. Areas are determined by home ownership rates, average household income, and FHA foreclosure activity. You take a second mortgage for 50% of the property value when you buy one of these houses. You don't have to make any payments on the second mortgage and no interest is charged. The second mortgage is repaid when you sell the house, and you get to keep any profits from the sale.
How Do You Take Advantage of GNND?
First, you need to first check your eligibility. Then, find your financing. You can shop for and choose almost any lender or program--an FHA loan, conventional financing, a VA mortgage, or even a rehabilitation loan if the property needs work. If you qualify for an FHA mortgage, you only need to put $100 down, and you can finance your closing costs as well. Knowing how much you can spend before shopping helps you narrow down your property search. Once you find a property in your area, you must use a HUD-registered real estate broker to make your offer. You can find HUD-approved brokers from the GNND property description pages.
How Much Can You Save by Buying this Way?
A lot! For example, if you buy a $300,000 home with 100% financing, your payment on the $150,000 balance (half the purchase price) at a 5.25% interest rate is only $828 a month instead of the $1,657 it would otherwise be. Remember, on the $150,000 second mortgage, you pay nothing. Over five years, you would save more than $45,000 in interest.
Start Your Search Now
Below you can find a list of the many agencies and organizations that offer mortgage assistance to the everyday heroes in their communities. Some of these assistance programs can be combined to maximize your savings. For you public service workers seeking home ownership, start looking now--you may prove that sometimes nice guys (and gals) do finish first.
Nationwide Home Buying Resources for Public Servants
The umbrella program for Teacher Next Door and Officer Next Door
A portal to home buying resources in each state such as:
- Free or low-cost advice from HUD-approved counselors
- HOME contacts for your local community
- HUD homes for sale
- Affordable housing programs
- Home buyer education programs
- Links to resources and programs offered at the state, regional, county, or municipality level
A federal program administered under HUD’s HOME Investment Partnerships program, providing grants for low-income first-time home buyers as well as uniformed employees such as police officers, firefighters, sanitation and maintenance workers, and teachers
Offers programs that reduce the cost of home ownership for low- and moderate-income families in designated geographic areas
Professional Organization Resources