Could the BorrowSmart program be your key to unlocking homeownership?
While renting can be more affordable on a month-to-month basis, owning your home is one of the pillars of financial stability. Acting like a forced savings account, while also serving as an asset that (usually) grows in value, a home can be one of the most important purchases you’ll ever make.
Unfortunately, the initial costs of purchasing a home can force people away from this longterm investment. Downpayments in particular can be particularly massive. Even low-downpayment programs; only requiring 5% or less, can be out of reach for some families. Even on moderate homes, a 5% or even a 3.5% downpayment can equal thousands of dollars,
Fortunately, there are a variety of programs created by governments and private organizations that help with downpayments. These programs help break the barrier of a downpayment, allowing people on tight budgets to enjoy the far-reaching benefits of homeownership.
One of these projects is the BorrowSmart program from Freddie Mac. This program allows borrowers to secure $1,000, $1,500, or even $2,500 in grants that can be used towards a downpayment.
Just How Expensive is a Downpayment?
Downpayments vary widely, ranging from roughly $1,000 to hundreds of thousands of dollars. However, if we look at the general downpayment requirements for most homes, we can get a fairly solid idea for how much they will cost. Understanding these totals will help you realize how important the BorrowSmart program really is.
Most borrowers will be using the BorrowSmart program on a fairly moderate purchase. (There are loan limits for using this program, which we address below.) Suppose you are purchasing a property worth $300,000; a mid-range, even low-range property in areas like San Diego County. With a 5% downpayment, you would be looking at a downpayment total of $15,000.
Even if we lower the purchase total to $200,000, then lowering the downpayment to 3.5% (the lowest available for FHA loans), we still have a downpayment of $7,000.
As you can see, even on moderate homes with low-downpayment financing, it’s still tough to generate a full downpayment.
What is the BorrowSmart Program?
The BorrowSmart program is designed to help people fund a downpayment, creating an avenue towards homeownership, which can be so important for the financial future of families and individuals.
This useful program is only available with certain mortgage products. Specifically, it is available for conventional conforming mortgage loan, and in some cases it may be available when joined with loans that require as little as 3% down.
It’s important to note that these are grants, not additional loans that need to be repaid. Essentially, if you qualify, you can consider these as gifts from Fannie Mae.
Various Levels of Funding Available
The BorrowSmart programs creates three different levels of funding ranging from $1,000 to $2,500. The amount of money that you can qualify for is directly related to your income.
The first level is a $1,000 grant which is available to people whose income is between 80% and 100% of the median income in the county where the property is located. Although it may not cover the entire downpayment for most loans, it could be extremely helpful for securing your financing.
The next available tier of grants jumps up $500. However, to qualify for this higher amount, your income needs to be lower. These programs are available for people whose income is between 50% and 80% of the median income in the county.
The largest of the available grants, this could significantly reduce your downpayment burden. If you have a low income for your area, you may qualify for as much as $2,500. This is available to anyone whose income is 50% or lower than the median income for the county.
These grants may not fund the entire downpayment and closing costs, but they can go a long ways towards helping you close the gap and enter into homeownership.
Requirements for Using These Grants
To use the BorrowSmart program, you’ll need to meet a variety of requirements, including…
Single-Unit, Primary Residence Only
These grants are only available if you are purchasing a single-family property that will serve as your primary residence. This means that the program can’t be used to purchase a duplex or a multiunit rental property, and it can’t be used to purchase a vacation home or a second home.
Maximum Loan Amounts Apply
There are also maximum loan amounts that apply to this financial support. The specific loan amounts will vary depending on where you live and the lender with which you work, but you likely won’t find the limits to be restrictive, especially if you are purchasing a moderately-priced home.
Homeownership Education Required for First-Time Buyers
One of the main requirements for this program is that you have to complete homeownership education if you are a first-time buyer. This is simply an education program that discusses important topics about homeownership. Budgeting, saving, wise use of credit, and other topics will likely be addressed during homeownership education. One-on-one counseling may also be available to increase your chances of successful homeownership.
You will likely be responsible for the cost of this homeownership education, which usually runs around $100.
Is it Available in Your State?
Unfortunately, this program is not available in all states, so you’ll need to check with your lender to see if the BorrowSmart program is available for you.
Currently, the program is available in many states, including California, Arizona, Illinois, Florida, and many other areas.
Dedicated to Helping You Purchase a World-Class Home
The BorrowSmart program could be one of the most important options you use when qualifying for a loan. Contact our team today to learn more about BorrowSmart and how you might qualify for up to $2,500 in downpayment assistance.
We are here to increase your chances of mortgage qualification, and we’d be proud to help you secure a grant through Freddie Mac’s BorrowSmart program!