By Ling-Mei Wong
We’ve all heard about someone who lives in affordable housing at a trendy neighborhood. Who wouldn’t want to have an address in the Theater District or Back Bay, next to shopping, dining and celebrity neighbors?
While affordable housing may sound like winning the real estate jackpot, there are several requirements for eligibility. These requirements depend on the type of home program individuals can qualify for, such as first-time homebuyers, veterans or families who earn less a specific annual income, said Melody Tsang, Multi-Service Center coordinator at the Asian American Civic Association. Different agencies who offer affordable mortgage products include city governments, state bodies, federal authorities and banks.
Even if you buy an affordable or low-income home, it comes with several caveats. The first is you cannot rent it out nor sell it for 50 years. The property cannot be transferred to immediate family or a partner, but must return to the government. Finally, property value cannot increase more than 5 percent a year, which could be less than market value.
Affordable housing is not for everyone. However, it can be a godsend for families in need.
What to do
The first step is to take a certified first-time homebuyer class, which is required for special housing programs and buying affordable housing. Classes are offered through associations or online for about 10 hours. During the class, potential homebuyers can learn from instructors about their options and advice for their personal finances. They can also visit banks in person for mortgage qualification, Tsang said. At the end of the class, students will receive a completion certificate. In some situations, homebuyers may qualify for lower-rate mortgage loan programs with this certificate, even if they don’t buy affordable housing.
After the class, homebuyers can decide what type of house is best for them. An apartment or single-family home may meet the needs of a small family, while a multifamily home allows homeowners to rent out units to help pay a portion of their mortgage back. Identifying the right home considers the family and its plans for the future, such as more children.
Prospective homebuyers should compare lending rates from different banks and financial institutions to find the most favorable and qualified plan. They need to bring proof of their most recent income, tax returns and bank statements to determine how much they can qualify for a mortgage loan. Most lending institutions will run a credit check before they make a decision. Once a bank has been selected, you should ask for a pre-approval letter, which shows the amount that you could qualify for. The pre-approval loan amount may change, depending on the selling price of the property and the amount of capital the homebuyer has for a down payment.
For example, you are approved for the loan amount of $240,000, separate from a 20 percent down payment. However, the selling price of the property is $250,000, making the down payment $50,000. In this case, the lender will let you borrow only $200,000.
For most mortgage programs, down payments less than 20 percent may result in higher monthly mortgage payments with additional insurance charges.
Once homebuyers know what they want, they need to get their finances in order. The four C’s are the main factors which the lenders use to calculate the loan amount. They are:
1. Collateral: Property used to secure the loan
2. Capital: Available cash to buy the home and pay off the loan
3. Capacity: Borrower’s ability to repay the loan, based on income and continued employment for usually two years
4. Character (Credit History): Credit history considers the borrower’s credit score, which is affected by foreclosures, credit accounts and unpaid charges
If affordable housing meets your needs, it’s time to find a place. To look up assisted housing availability, visit the Citizens’ Housing and Planning Association website at www.chapa.org. Remember that assisted lending rates are not for these properties only, which have specific restrictions. It may not be in a hip hotspot, so don’t expect to be rubbing shoulders with baseball stars.
This is part one of an affordable housing series.
This post is also available in: Chinese