State housing finance agencies: what they offer first-time buyers

What an agency is and is not

An agency is a public or quasi-public body. It is not a bank, and in most programs you never apply to it directly. NCSHA notes that it does not run housing programs itself and directs people to contact their state agency. The agency designs the program, sets eligibility rules, raises or allocates the money and approves the lenders who offer it. You apply through one of those lenders.

That arrangement has two consequences. First, the lender you already like may not offer your state's program, so you may need a participating lender. Second, the program's rules sit on top of the loan's rules, so you meet both.

The four common kinds of help

First mortgages. Many agencies offer their own 30-year fixed loans, often FHA, VA, USDA or conventional loans that follow agency rules. Some carry a rate the agency sets.

Down payment and closing cost assistance. This is the most visible help. It can be a grant, a forgivable second loan or a repayable second loan. Fannie Mae's Selling Guide sets the rules for using grants and certain agency-funded assistance with conventional loans, and FHA, VA and USDA have their own.

Mortgage credit certificates. Some agencies, and some cities and counties, issue these federal tax credit certificates. IRS Publication 530 tells buyers to contact their state or local housing finance agency about getting one before getting a mortgage.

Education and counseling. Many programs require a homebuyer education course, and agencies often list approved providers.

How to find yours

NCSHA keeps a directory of state agencies with links to each one. HUD's state pages also point to local homebuying resources. Go to the agency's own site for the current program terms, because rates, limits and funding change during the year. Some programs pause when funds run out.

Cities and counties sometimes run their own programs too, separate from the state agency. If your state's program does not fit, check your city or county housing department as well.

Questions to ask before you count on a program

• Is funding available now, and how long does approval take?
• What are the income and price limits for my county and household size?
• Is the assistance a grant or a loan? If a loan, when is it repaid or forgiven?
• What happens if I sell or refinance in the first few years?
• Does the program's first mortgage cost more than a standard loan? Compare rates and fees.
• Which lenders offer it, and how many of these loans have they closed?

The last question matters. Agency programs add paperwork and steps, and a lender that does them often will handle them faster.

The bottom line

Your state housing finance agency sets the rules for much of the help first-time buyers can get, but you reach it through participating lenders. Read the agency's page, check the limits, take the course and compare the program against a standard loan. Then make sure you understand when any assistance has to be repaid.