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Wednesday, January 30, 2013

It’s a grant, not a miracle…


I got a call from a young would-be home buyer who apparently read my post about the new MSHDA Homebuyer Grant Program and wanted to talk to me about what was required to get the grant. As we talked it became apparent that this buyer had not fully comprehended that this is a program to help first time homebuyers, or those who haven’t had a home for at least three years, cover some of the costs involved in buying a house. It can only be used in conjunction with the home-buying process and no money ever ends up in the hands of the buyer – it all goes into the purchase somehow. It can be used to cover closing costs and things like insurance and the tax proration and even to pay down the amount of the loan, so that the buyer gains instant equity; however, none of it leaves the closing in the buyer’s pocket.
 
The next thing is that this is not a miracle that will rescue someone with a 550 Credit score and make them a homeowner. All of the major lenders and organizations like Freddie Mac and Fannie Mae and even FHA, what to see credit scores of 640 or above, with or without a MSHDA Grant. In fact, the way the program is set up to work, you apply for this grant as part of the mortgage process and no mortgage lender is going to go down below 600 no matter what grant money you might qualify top receive. You have to qualify for a mortgage before you should even worry about this grant.
There is good news for those with fair credit (640 and better) who do qualify for a mortgage - there is no means test for this program – you can make $40,000 or $80,000 or more and still get a grant. That’s rare in an environment where most programs are aimed squarely at low income buyers only. You also never have to pay it back – it’s a grant, not a loan. But remember, it’s not a miracle. You need to get your credit in order.  Your credit score needs to be at or above 640 before worrying about this program.
That brings me to the next thing that came out of this call. The buyer told me that he/she had engaged a “credit-fixer” to get his/her credit score raised. I didn’t have the heart to ask if he/she had paid that credit-fixer up front for that work. There are just too many scams out there right now involving people and companies that claim to be able to repair your credit. Every reputable financial advisor will tell you - never, NEVER, pay anyone up front to repair your credit. You are likely never going to see them again nor any improvement in your score. There are several reputable, non-profit credit counseling agencies available in this area to help you. Go to the web site for the  National Foundation for Credit Counseling (NFCC) for help finding a free or low cost credit counselor in your area.
The last topic that this call covered was the concept of the lease with option to buy. That seems like a reasonable thing to hope for, if you are not in a credit position to buy right now. The reality in the market that we have right now is that there are very few homes for lease, period; and few if any landlords looking for option to buy leases. Those landlords who might entertain such an arrangement are likely to want a hefty up-front and non-refundable option payment and will want top dollar on the sale price, since they are betting on a market price for the house a year or more out. Right now it would be very rare to find any lease with option offerings – not impossible, but rare.
So for this would be grantee, my advice was to focus for the next year or two on getting their credit rebuilt and their credit score up. This grant program will likely be long gone by then, since it has limited funding; however there are other programs and other grants that will still be there to help first-time homebuyers and people who haven’t owned a home for 3 or more years. The USDA will likely still be running their 100% financing program in 2-3 years for people buying in areas designated as rural and the VA will still be running its 100% financing program for vets.

The MSHDA Grant Program is a great deal for those who are ready (and qualified) to buy now. You can read my original post on this program by clicking here or just scrolling down three posts if you are reading this on my blog. There are links there to the forms and document that explain the program. Right now one of the big things you need to do to take advantage of this program is to find a mortgage company that has been state certified to do the grant paperwork. John Adams Mortgage is the only one that I know of right now that is currently processing grant requests. I am obliged to inform you that the owners of Real Esate One, for who I am an agent, also own John Adams Mortgage.

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