First-time homeowners can benefit from government housing assistance. From lower costs to an easier path toward homeownership, government programs are often appealing to many.
If you qualify, you have the option of receiving your rental assistance in a lump sum or ongoing smaller payments. If you choose the former, you can receive an amount approximately equal to a year of monthly payments. That amount can provide you with a brief buffer until you can take over mortgage payments on your own.
If you opt for ongoing assistance, the length of time you can receive it is dictated by the terms of your mortgage. A mortgage with a term of less than 20 years allows you to receive assistance for up to 10 years. A longer mortgage has a maximum assistance length of 15 years.
However, there are some potential drawbacks to note, especially if you are a first-time homeowner who is unprepared. For example, purchase agreement stipulations, minimum down payment requirements, and the general responsibilities of homeownership can all quickly put a dent in the funds you have saved for a home.
Consider a home that costs $150,000. The basic monthly payment on such a home may only be approximately $600. However, hidden fees and other charges could push the actual monthly payments you need to make to over $800.
If you are enrolled in the HCV homeownership program, your PHA may give you a voucher to cover some of that cost each month. However, not all of it is covered. To determine if your budget can handle a rent to own purchase agreement, must also factor in issues like:
- Your total starting budget
- The amount of HCV assistance for which you qualify
- Home insurance payments
- Private mortgage insurance payments
- Property tax payments
- Property maintenance budget
- Down payment requirements
The amount you must pay each month versus the amount of assistance you receive is determined based on the criteria established by HUD and the PHA. Those standards typically require you to designate at least 30% of your household income for making mortgage payments. Sometimes, up to 40% is required. If the amount of assistance you can get would require you to pay more than 40% of your income, you may not qualify for the program.
If you have already been part of the Section 8 or HCV program as a renter, your monthly payment for rent to own may remain similar to what you paid previously. However, the PHA takes multiple factors into account, including your income level and expenses.
Also, if your circumstances change while the agreement is active, the amount you must pay may also change. For example, adding a child to your home impacts your income versus expenses.
To maintain eligibility for government lease to own homes assistance, you must continuously follow PHA rules. For example, the PHA does not allow you to rent any portion of your home to a tenant while receiving assistance. Violation of the rules results in immediate termination of assistance.