State programs can help you buy a home

Virtually every state has programs to help first-time or lower-income buyers seal the deal on a home.

From low-cost mortgages to down payment assistance, these programs can lower monthly

payments, provide cash for closing and make the numbers work for you.

The recession caused rocky times for these loans when states found it hard to raise money by selling revenue bonds. (Alabama and Arizona and a few others are still struggling.) But the funding has been flowing again in most places, though it's always on a first-come, first-served basis.

Most of these programs are limited to buyers who haven't owned a primary residence for three years, unless they are buying in targeted areas.

Most also have restrictions on how much money you can make and the price of the home you want to buy.
You'll have to document your income, so steady work is a must and good credit definitely helps, though some programs go out of their way to help subprime borrowers.

Applying isn't any more difficult or time-consuming than applying for a conventional mortgage. Many of the programs work through networks of private lenders.

Here's the kind of help you can expect to find:

Loans with below-market or at least competitive interest rates. These generally are 30-year, fixed-rate loans. Most have income caps and some have caps on the purchase price of the home.

Cash for down payments and closing costs. Amounts vary, and there generally are income caps and other restrictions. But in some cases, these loans never have to be repaid if you live in the home long enough.

Loans toward the purchase or repair of homes. Massachusetts, for example, offers purchase and rehabilitation loans to cover 97% of the purchase price plus rehabilitation costs or the estimated value of the home after rehabilitation.

Borrowers need a 3% down payment, and they must meet income and purchase price requirements. New York has a similar program but requires only a 1% cash contribution from borrowers.

Income tax credit programs. Mortgage Credit Certificates allow qualified applicants to claim 20% to 30% of the interest they pay each year as a federal tax credit. That credit is subtracted from the amount a homeowner owes in income taxes, up to a maximum of $2,000.

The remaining interest still qualifies for the standard mortgage deduction, which is subtracted from a homeowner's taxable income.

Help for public-sector employees, people with special needs and others. Not every state offers this kind of assistance, but some have special mortgage loan programs for teachers, police officers and fire fighters, state and municipal workers, people with disabilities, health care workers, veterans and active-duty servicemen and women. North Dakota includes single-parent households in the mix.

Michigan and Ohio have programs geared toward helping recent college grads put down roots before they leave the state for jobs elsewhere. And North Dakota's Roots program targets new arrivals and Dakotans who have left the state more than a year ago but want to return.

A few states have additional enticements:

Maine's Gift of Green program offers a grant of $2,000 to help with closing costs — it's truly a gift; it doesn't have to be paid back and isn't added to the loan amount — plus a coupon worth up to $500 for a two-part home energy audit.
Mississippi's Home Loan Plus program offers grants of up $14,999 to qualified low-income buyers.
New York is partnering with builders and energy groups to offer incentives to purchasers of new, Energy Star-labeled homes. Interest rates are 0.375% lower, with no points or origination fees, and there's a 240-day rate lock. You can get down payment assistance of $3,000 or 3% of the purchase price up to $15,000.
New York also has a construction incentive program that offers up to 97% financing for new one- and two-family homes.
Ohio's New Home Sweet Home program offers first-time buyers of new homes a rate lock of up to 180 days while the builder finishes construction. The interest rate is set 0.25% higher than the standard rate.
South Carolina's extended-lock program goes for 180 days with the option of a 90-day extension and allows the borrower a one-time "float down" to the current interest rate before the closing date.
Tennessee's New Start program is aimed at low and very low income buyers, and works through partnerships with nonprofits.
Washington state's A New Home for You pilot programs offers fixed-rate loans for first-time buyers of newly built homes with credit scores of 680 or above.

These programs aren't for everyone, but it's smart to investigate what's available, especially if you've had credit problems.

Start by checking to see what your state offers.

Here's where to find links to state first-time buyer programs. Remember -- these programs can change, so it's wise to check the websites periodically for updates.

Whether you're buying a home or refinancing an existing mortgage, we have a mortgage calculator that can help you make the right decisions.