Massachusetts Home Buyer Guide

The Boston Globe reported on July 9, 2014 that a few additional lenders have agreed to participate in a state program to provide loans to first-time home buyers through MassHousing and the Massachusetts Housing Partnership. What types of loans are available to first-time home buyers? Eligible first-time home buyers may qualify for mortgages with low down payments, no private mortgage insurance (PMI) and other benefits. 

The following are a few, but not all, of the loan programs available to first-time home buyers in Massachusetts. 

Massachusetts Housing Partnership ONE Mortgage

The Massachusetts Housing Partnership (MHP), a public, non-profit affordable housing organization, offers Massachusetts first-time home buyers who fall into the low- to moderate-income category the "ONE Mortgage" loan program.

MHP originally offered the SoftSecond Loan Program, which had a two-mortgage structure. By 2013, the SoftSecond loan program had helped more than 17,000 families over nearly 25 years purchase their first home, with more than $2.6 billion in private mortgage financing.

To continue Soft Second's success, MHP has transformed the program in January 2014 from a two-mortgage structure to the One Mortgage Program. One Mortgage offers lower-income home buyers the same affordability and financial security as the SoftSecond, in a simpler one home loan structure.

First-time borrowers must meet income limits, which vary by county. In Suffolk County, for example, a household of two could earn about $75,000.  Borrowers also must participate in a first-time home buyer class. 

Fixed Interest Rate for Borrowers

As of April 2014, there were approximately 25 lenders that participated in the One Mortgage Program. Those lenders offer first-time home buyers a discounted 30-year, fixed-rate mortgage. There are not any points charged by these participating lenders. More lenders have agreed to participate since April 2014. 

Low Down Payment Loans

Home buyers must put down a minimum of 3 percent of the purchase price when purchasing a single-family property, condominium or two-family house. The borrower must occupy the property. Of the 3 percent down payment, 1.5 percent is required to be from the borrower's own savings; however, the remaining amount can be a gift or down payment assistance. If a gift, the borrower must obtain a letter from the person providing the monetary gift that states the money does not have to be repayed. The remaining amount of the down payment cannot be another loan. Most conventional loans require at least a 5 percent down payment. For a $300,000 purchase price ($9,000 down payment), a 3 percent down payment is $6,000 less than a home buyer typically needs for a down payment. For the purchase of a three-family home, the One Mortgage Programs requires a minimum down payment of 5 percent of the purchase price. The home buyer must have 3 percent of the 5 percent down payment in his or her own savings.

No Private Mortgage Insurance (PMI)

The One Mortgage Program does not require home buyers to purchase private mortgage insurance (PMI), sometimes just referred to as mortgage insurance or MI. Not having to obtain costly PMI saves a home buyer hundreds of dollars every month. Conventional loans require PMI until the borrower reaches 20 percent in equity, which can take several years to reach. Without PMI payments every month, home buyers may potentially save thousands of dollars over the first several years of the loan alone.

Interest Subsidy for Eligible Home Buyers

Income eligible One Mortgage Program borrowers may also qualify for a subsidized monthly payment in the initial years of ownership. The subsidy is automatically applied to the homeowner's monthly mortgage statement by the lender and helps pay a portion of the mortgage payment during the first seven years of home ownership. More information about eligibility may be obtained from a participating lender. 

MassHousing First-time Home Buyer Programs

MassHousing supports affordable home ownership for Massachusetts residents with modest incomes. Although all MassHousing first-time home buyer programs have income limits, many home buyers are surprised by how much income they can earn and still qualify.

MassHousing has several mortgage programs, which have different features, eligibility requirements and benefits to borrowers seeking their first home loan. Borrowers must complete a first-time home buyer class prior to closing.

MassHousing partners with community banks, credit unions and mortgage companies. Not all lenders can provide MassHousing loan products. The following are just some of the MassHousing programs available. 

MassHousing Mortgage

The MassHousing Mortgage has a variety of benefits for first-time home buyers that are not available with most conventional loan programs, with maximum income limits as high as $123,120 in 2014. The income limit varies by city and town; however, the maximum limit is available in all communities in Essex, Middlesex, Norfolk, Plymouth and Suffolk counties. The income limit in Worcester County is $109,755. There are also mortgage loan limits based on the type of property a home buyer purchases.

MassHousing Mortgage loans, which have competitive interest rates and fixed-rate terms, allow for 97 percent financing, with no cash required on single-family homes and condominiums. In other words, the 3 percent down payment can be a gift from someone else. Rate locks of 30 to 75 days are available, as well as non-traditional credit considerations, such as limited credit history. First-time home buyers must still meet a particular lenders underwriting requirements.

MassHousing Mortgage loans feature MI Plus, a mortgage insurance that helps a homeowner pay their mortgage, up to $2,000 per month, in case of a job loss for up to six months. There is not any added cost for MI Plus protection. 

MassHousing Mortgage With No MI

The MassHousing Mortgage With No MI provides first-time home buyers with the same benefits as the MassHousing Mortgage, but without the extra cost of monthly mortgage insurance (MI), which also is referred to as private mortgage insurance (PMI).

The no MI program provides for financing up to 97 percent for single-family homes and condos and 95 percent for two- to four-family houses. The fixed interest rate is slightly higher than the MassHousing Mortgage, but the total monthly mortgage payment likely will be less, for home buyers putting down less than 20 percent. A mortgage professional that handles MassHousing loans will be able to provide a detailed analysis showing whether the MassHousing Mortgage or MassHousing Mortgage With No MI is a better fit for your personal circumstances and home ownership goals.

Lender-paid Mortgage Insurance Program

MassHousing recently announced a new lender-paid mortgage insurance (LMPI) program that increases a borrower's home-buying power. 

Through the program, the lender pays the full mortgage insurance premium for the borrower at the time of closing, which is good for the life of the loan. This cost is offset by a higher interest rate on the mortgage, compared to a loan with borrower-paid MI (BPMI). Even with the higher rate, the LPMI loan generally results in a lower monthly payment for the borrower for the first several years of the loan. Home buyers will want to discuss with a buyer agent or mortgage professional about which loan product is more suitable for their situation.

MassHousing's LMPI loan not only potentially saves home buyers thousands of dollars in mortgage insurance premiums, but it also provides the MI Plus unemployment benefit protection, which provides for the payment of all or a portion of a borrower's monthly principal and interest payment, if they lose their job.

The LPMI program is best suited for home buyers who expect to sell their home, refinance or pay off their mortgage within 10 to 15 years. Because the higher interest rate of a lender-paid mortgage insurance loan remains in place until the loan is refinanced or paid off, and because borrower-paid mortgage insurance can be canceled once the loan-to-value reaches 80 percent, the borrower-paid mortgage insurance loan is a better choice for home buyers who intend to keep their mortgage beyond 15 years.