August 4, 2019
Rates moved significantly last week, not due to the Federal Reserve lowering rates, but due to the market’s reaction to the continuing trade war and tariff situation. But the move in rates does not create new programs for borrowers, and Orion’s management feels that it is important for our brokers to understand programs that can help their borrowers, regardless of whether Orion focuses on them or not. The government doesn’t want homeownership to be something only the rich can achieve, hence why there are programs in place to make buying a home more accessible to low- and middle-income families.
One of those programs is a government subsidized bond loan. The government support means lenders can offer low interest rates, which helps make a home purchase affordable for Orion’s brokers clients. In some cases, applicants for bond loans can get both a low interest rate and a chunk of cash to help with a down payment or closing costs. State and local authorities in turn issue bond loans backed by mortgages (mortgage revenue bond loans) in order to subsidize the cost.
Mortgage revenue bonds are bonds backed by a mortgage or pool of mortgages. When the homeowners tied to these mortgages make their interest payments, that funds the payments made to mortgage revenue bond investors on a tax-free basis, making mortgage revenue bonds seem attractive and safe to certain investors. The government can direct a lender to make a certain number of home loans available to people with income below a certain level, backing those loans with government money. Lenders who might otherwise have declined to offer loans to low- and middle-income applicants will take the government backing as a sign that it’s safe to extend home loans to riskier applicants.
Orion’s brokers know that there is some information that borrowers should know. Some applications can be taken in the participating bank, but often a borrower will first have to apply with the state or local housing finance authority that runs the bond loan program. Bond loans are generally for 30-year fixed-rate mortgages. Income requirements often specify that household income be no greater than 115% of the area median income, but this rule can vary. Many programs require a first-time home buyer to qualify for a bond loan, but that’s not true everywhere. Finally, when considering a bond loan, check with a local bank, housing finance authority or affordable housing corporation to see if they participate in bond loan programs, as not every lender does.
Orion’s goal is to help our brokers help their clients!