While homeownership is a pillar of financial stability, a downpayment, which is almost always required, can be a major hurdle. Fortunately, there are options, including the BorrowSmart program from Freddie Mac.
This downpayment assistance, which can cover 100% of your closing costs, is available to most buyers who have an annual salary at or below the “area median income.” So if you earn a salary that is lower than the typical income for your area, there’s a strong chance you’ll qualify for this generous assistance.
Combine with HomeOne and Home Possible Programs
Freddie Mac’s BorrowSmart program is only available when you are using either the HomeOne or Home Possible programs. These programs are intended for first-time and low-income borrowers, providing support for people who often struggle to purchase a home.
HomeOne is a mortgage program that has no income limits or geographic requirements. Created for first-time buyers only, it requires only a 3% downpayment and is available for single-family, owner-occupied properties. (No multi-units or investment properties.)
HomePossible, on the other hand, is specifically for low-income buyers. It allows for a variety of downpayment-assistance options but requires that borrowers have an income of 80% or less than the AMI.
AMI: AN Important Concept for the BORROWSMART PROGRAM
The BorrowSmart program leans heavily on the concept of AMI, for “Area Median Income.” Essentially, it uses a comparison of a borrower’s income compared to the region’s median. (Not the region’s average, they are slightly different.)
These programs are meant for borrowers at or below the typical level for their area. Therefore, they have adopted AMI, as this provides a fairly reliable number for personal incomes compared to the region’s salaries.
Suppose the city where you live has a median income of exactly $100,000. (This would be a high-income area, but we’ll stick with the example.) In this case, if you had an income of $60,000, your income to the AMI would be 60% of the AMI. ($60,000 is 60% of $100,000.)
This is important, as different incomes bring more or less buying power in different areas. A $40,000 annual salary may be enough for most areas, but in a city like San Diego, it would be a fairly low income. It would not be fair, therefore, to treat a $40,000 salary in, say, rural Arkansas the same as a $40,000 salary in San Diego.
So you not only need to know your income, you need to know the median income of your area.
HOW TO CHECK YOUR AMI
You probably don’t know your area’s median income off the top of your head. To find out, you can use the Home Possible Income and Property Eligibility Tool from Freddie Mac.
With this tool, simply plug in the county, city, or address where you will live and you’ll see information on the median income, Home Possible income limit, as well as different tiers of income. (80%, 50%, for example.)
This tool will help you better understand eligibility and determine whether certain options are available.
THREE TIERS OF Downpayment Assistance
The program is based on a three-tiered system. Essentially, the amount of assistance for which you qualify depends on your income compared to the income in your city or county.
Mid-Level: Incomes of 81% to 100% AMI
The first tier of support is for people earning just below the area median income. In this case, the home being purchased needs to be in a “high needs rural tract.” Your mortgage professional can help determine if the home you are considering meets this requirement. For this tier, only mortgages using the HomeOne program are eligible, but you can receive downpayment assistance up to $1,000.
Low-Level: Incomes of 51% to 80% AMI
If you are between 51% and 80% of your area’s median income, you can qualify for a bit more assistance. In this case, only Home Possible mortgages are eligible, and you can get assistance as high as $1,250, although certain details apply and some may only qualify for $1,000.
Very-Low: 50% of Lower AMI
More assistance is available to people whose income is at or below half the area’s median salary. In this case, you can get up to $2,500 in downpayment assistance. Although it’s only available through the Home Possible program, you can receive life-changing homeownership assistance that helps you finally become a homeowner.
Assistance can be combined with other support
While some programs limit the amount of support you can receive from outside sources, the BorrowSmart program is fairly lenient in this regard. If you are eligible to receive the downpayment assistance, you can combine it with gifts from family members, nonprofit groups, and other government agencies. It also allows for employer-assisted homeownership programs and affordable second mortgages, as well as other charitable downpayment assistance programs.
Essentially, BorrowSmart attempts to remove as many barriers as possible between you and your home purchase.
should you use the borrowsmart program?
This program can be extremely beneficial, helping you break the downpayment barrier that often stops people from purchasing a home. BorrowSmart can be helpful in many ways, but the most important factor is that it can fund up to 100% of your closing costs. Essentially, you can purchase a home with no upfront costs, creating a smooth path to homeownership.
Even when a borrower has to provide some upfront cash, the program allows borrowers to bring less money to the closing table. Whether you fund 100% of the costs or a small fraction, you’ll have more cash left for home upgrades, maintenance, or furnishings.
how to qualify for this assistance
Qualification is fairly simple. First, you’ll want to work with a mortgage official who can determine your income and compare it to the area’s median income.
Assuming you qualify, you’ll need to find an eligible property. These properties must be single-family residences, condos, PUDs, or manufactured homes. (Although the last option is not eligible for HomeOne.)
You will also need to complete an eligibility assessment with the Homeownership Preservation Foundation (HPF). Your mortgage agent can walk you through this simple step.
You’ll need to complete homeownership counseling. There is a small fee (about $100) and it takes roughly an hour. During this counseling, you’ll learn the basics of homeownership, helping you become a more responsible and informed buyer.
Think the BorrowSmart program would be right for you? No matter where you live, we would be happy to help with your application.
With so many support programs available, there’s no reason why you can’t purchase a home. Contact our team today and let’s make your homeownership dreams a reality!
