Today's Mortgage Lending Options Help LMI Buyers

Jennifer A. Digiovanni, November 2019

Today's Mortgage Lending Options Help LMI Buyers

Homebuyers considering their mortgage options tend to only focus on conventional mortgage loans. But most banks also have mortgage lending programs created specifically to assist low- and moderate-income (LMI) buyers in reaching their homeowning goals. LMI buyers may be able to qualify for a home loan based on their salary history, the neighborhood in which they live, or their military status.

In addition to offering government-sponsored mortgages with low down payment options, banks are finding even more ways to make homebuying more accessible and to support the communities they serve.

Mortgage Options for LMI Buyers

Many banks offer mortgages that make it more feasible for LMI individuals and families to buy a house. Examples of these options include:

  • Mortgage Loans in Underserved Communities: Depository institutions that carry FDIC deposit insurance must comply with the Community Reinvestment Act, which requires them to assist in the stabilization and revitalization of underserved areas. One way that banks fulfill their Community Reinvestment Act Act obligations is by providing single-family mortgages to LMI borrowers.
  • First-Time Homebuyer Programs: Many banks have programs to help first-time homebuyers reduce their down payment or closing costs. These programs sometimes also include financial counseling and homebuyer education.
  • Low Down Payment Options: A Freddie Mac survey revealed that 88 percent of low-income renters think that "having the money for a down payment and closing costs would be an obstacle to homeownership." However, according to NerdWallet's 2019 Home Buyer Report, 32 percent of current homeowners put down 5 percent or less on their house. Mortgage loans specifically for LMI buyers can help them avoid making large down payments. Veterans may also qualify for VA loans, which offer favorable terms including up to 100% financing and no private mortgage insurance for eligible borrowers.

How to Qualify

LMI buyers who wish to qualify for programs offering additional assistance should talk to a mortgage loan officer and spend time learning about their options. It's helpful to prepare in advance by gathering income and debt information; this can help a mortgage lender determine which programs a buyer may qualify for based on their current finances.

As LMI buyers work to determine which option is right for them, they should work on one or more of these steps to improve their chances of getting approved:

  • Review their current income and expenses to determine what monthly housing payment they can afford, including a mortgage, real estate taxes, and insurance. Generally, the payment should be less than 30 percent of pretax income.
  • Pay down existing loans and review credit history to verify the accuracy of account information.
  • Decide how much they can spend on a down payment, which will affect the type of loan they'll qualify for. Many mortgage lending programs administered by local banks, including FHA-insured loans, require lower down payments, some as low as 3.5 percent. Fannie Mae HomeReady is also offered by KeyBank and allows for as little as a 3% down payment for eligible borrowers. Other programs, including VA loans, allow for zero down payments — as long as borrowers meet certain criteria.
  • Compare interest rates and loan terms from several different mortgage programs to make sure they're receiving the best possible loan for their situation.

Key Community Mortgage®

As part of its investment in the communities they serve, KeyBank offers mortgage programs, such as Key Community Mortgage, that are tailored specifically for LMI buyers in underserved areas. KeyBank takes a nontraditional approach when evaluating an applicant’s credit eligibility for Key Community Mortgage, including reviewing salary history and on-time payments. Homebuyers qualify for Key Community by meeting certain income and property location criteria.

If Key Community Mortgage isn't the right fit for a homebuyer, KeyBank bankers can recommend other programs to help. Put homeownership within your reach with a KeyBank Financial Wellness Review — a personalized, one-on-one conversation with your banker that keeps your goals and financial needs in mind, so you get the definitive direction that's actually doable.