There are certain things related to buying a home that you can control. By taking charge of these issues, you can raise your odds of finding and purchasing your own home.

Deciding Whether to Rent or Own

The initial and most important consideration is deciding whether homeownership is really right for you. With homeownership comes responsibilities, and not everyone is ready, or willing, to take those on. Major responsibilities include paying a mortgage on time every month and keeping the property in good living condition. There is no landlord to call if the toilet overflows! You are responsible for everything.

So why take on this big responsibility? Here are some great reasons:

1. Owning a home can help you build your wealth. Education, small business development, and homeownership are the most common ways to build wealth. Even when the real estate market is doing badly, people who have owned their homes for a long time still can show that the value of their homes has gone up since they bought them. Homeownership is not a get-rich-quick scheme — it’s a strategy for gradually getting wealthier over the long term.
2. Owning a home has tax advantages. The mortgage interest and property taxes a homeowner pays are generally deductible from income taxes. This deduction can mean big tax savings for people with employment income.
3. You can prevent your monthly payments from ever going up. If you get a fixed-rate mortgage when you buy a home, the monthly payment for your mortgage will stay the same until you finish paying it off. With a fixed-rate mortgage, the monthly payment you make today is the same as the one you will make next year, in 5 years, and in 25 years!
4. Homeownership lets you be more independent. It is a great opportunity for personal autonomy and lets you put down roots in your community. You have a lot more choices about how you want to decorate your home, how long you want to stay in an area, and what your house rules are than you have when you are renting. Owning a home also makes you part of the community, someone with a stake in the neighborhood, an equal property taxpayer!

Deciding Where to Live

One of the most important aspects of homeownership is deciding where to live. When you look at homes, try to find something that makes the most sense for your situation. You may want something in a neighborhood you are familiar with or something close to your work or near public transportation. If you have children, you may want to research what the local schools are like.

Nobody can force you to buy a house in an area you don’t like. However, depending on the money you have saved up and your earnings, you may be able to afford living in one area, but not be able to afford to purchase a home in another more expensive area. When you look for a home, you can ask your realtor if there are affordable, growing neighborhoods where you can find a good deal.

Saving Money

There are ways to buy a home even if you have very little in savings. But the bottom line is that the more money you have, the easier the home-buying process will be and the more choices you will have. For example, it is harder to get a loan when you don’t have a lot of money available for the down payment. So you should make it a goal to save up some money.

The money you save to buy a home will actually be used for 2 things:

1. The down payment. This is the amount of money you will be paying upfront for the house and will not be borrowing from your lender. Down payments are often 20% of the price of the home, but there are options that can let you buy a home with a much smaller down payment.
   Note: Small down payments may result in additional costs and charges, such as Private Mortgage Insurance (PMI).
2. Closing costs. These are expenses related to buying a home that are not included in the price, such as the appraisal, home inspections, loan fees, and taxes. You should expect the total of these closing costs to be anywhere from 3% to 5% of the price of a home. If you buy a property that costs $100,000, your closing costs will likely be between $3,000 and $5,000.

When you save up money to buy a home, it is very important that all money you have saved must be documented. That means it must be in a bank account. You cannot use cash to buy a home if you are getting a mortgage loan.

Later in this article, we’ll talk about how you can find mortgage loan programs and supports that can help you purchase a home even if you don’t have a lot of savings for a large down payment. We’ll also explain Individual Development Accounts (IDAs), a great program for saving up money for a down payment on your first home.

Managing Your Money

Everyone knows that saving money is important, whether you are buying a house, a car, or just putting aside a few dollars to get out of town once in a while. The challenge is to make it happen. There are 3 important aspects of money management that anyone who wants to buy a home should think about:

1. Budgeting. This means keeping track of the money you bring in (from jobs, benefits, and other sources) and the money you spend (on gas, utilities, groceries, or other expenses). Budgeting is very important because you can’t save for a house if you are spending more than you are bringing in. One of the initial steps towards homeownership is managing your money so that you can pay all of your bills each month and still have a little bit left over to save in the bank.

2. Credit. This is money you borrow. For example, if you have a credit card, you are borrowing money whenever you use your credit card and you are paying the money back when you pay the credit card bill.

3. Paying down debt. If you have debt, it means that you should make it a top priority to lower your debt. That’s because you have to pay interest on your debt each month. If you can reduce the principal on your debt, the amount of interest you have to pay each month will also go down, leaving more money for you to save up for a down payment or to spend on other things you need.

Handling Credit Problems

If you have a low credit score, there are several techniques for dealing with your credit problems. One is to speak to a good mortgage lender who will help you identify the reasons why you have a bad credit score and advise you on the best ways to fix those problems. Another idea is to work with a local nonprofit credit repair specialist. Fixing your credit can take time, but is a necessary step toward homeownership. Among other things, you will probably need to start paying your creditors on time, pay down high balances (the amount you owe on the credit card), and stop any overuse of credit cards.

Note: Not all credit problems are caused because you haven’t paid your bills. Sometimes you may have a credit problem because there is a mistake in your credit report. If there is an error or a dispute related to your credit report, your lender or a credit-repair specialist will be able to help.

Finding New Income Sources

It may seem hard to raise your income if you currently are getting Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI). A lot of people with disabilities don’t realize that they could get jobs and raise their income. Even people who get SSI or SSDI benefits can get jobs and in many cases won’t lose their benefits! To read more about programs that let you keep getting your cash or health benefits even when you have a job, read DB101's article on Work Incentives.

Your income is important when you buy a home because it helps decide how large a mortgage you can afford:

• Banks will not give you a home loan if the monthly mortgage payment would be more than 45% of your adjusted income.
• It will be much easier to get a loan if the monthly mortgage payment would be 31% or less of your adjusted income.
• If you get SSI or SSDI benefits, your income will be adjusted to a higher amount when the bank or lender decides whether to give you a loan.
• If you are on Section 8, you can get a home loan even if your income is lower than the usual standards (this is explained later in this article).

Choosing Your Real Estate Team

Surround yourself with people who can help you achieve homeownership. The most important member of that team is your realtor.

A realtor should:

• Know about first-time buyer programs
• Connect you with an appropriate lender or loan program
• Help you find the right home
• Locate contractors who can fix up the home if necessary
• Be available after you move in, if needed

For people with disabilities, a realtor should also:

• Be sensitive and responsive to your specific situation and needs
• Understand how your disability impacts your ability to evaluate property both physically and mentally
• Know about specific financing opportunities for people with disabilities and low incomes
• Know contractors who can make accessibility modifications

The realtor should help preview properties and help figure out how accessible they are before showing them to you. You may need to clearly communicate your specific needs to the realtor. Remember, you are the customer and the realtor is working for you.

Sometimes, if you talk to an Independent Living Center or other local disability organizations, you can find realtors who specialize in helping people with disabilities purchase their first homes. Ask your friends, neighbors, and other people you know who have purchased a home; hiring the right realtor is critical for your home-purchase team.

There are a number of factors outside your control as you try to buy a home. Gaining a solid understanding of these limitations and learning how to overcome them are crucial to your success as a home buyer.

Home Prices and Interest Rates

Home prices and interest rates are the 2 biggest things that impact how much you’ll pay each month when you buy a home. For example, if you purchase a home with a 30-year $100,000 fixed-rate mortgage loan with a 4.5% annual interest rate, you will have a $507 mortgage payment each month for the next 30 years. You’ll end up paying more than $180,000 total by the time you finish repaying your loan!

You can’t control how much a home costs or what terms a bank will offer you for a mortgage. However, you can look for a home that is in your price range and find a lender that’s a good match for you. The best way to do that is to have a good realtor. Your real estate agent should have a solid understanding of how much homes cost in the areas where you are considering purchasing a home. Your real estate agent should also know how you can get the best possible interest rate on your loan. DB101 has information that can help you find a real estate agent.

Loan Programs

There’s no way for you to control what loan programs are available at any specific point in time, what their terms are, or how much they will charge in interest or fees.

In recent years, there are 3 main home-loan options:

1. Conventional loans: These loans, offered by banks and mortgage lenders, typically require the borrower to make a down payment of at least 10% of the purchase price.
2. FHA loan: Federal Housing Administration (FHA) loans are also offered by banks and mortgage lenders, but are insured by the federal government. They are popular because they let buyers make much smaller down payments — usually 3.5% of the purchase price — and they are typically available for people with lower credit scores.
   • 208 loans: These are a type of FHA loan for people with disabilities that let you take out a mortgage that is greater than the home’s value — up to 120% — to make accessibility modifications to the home after you buy it.
3. VA loans: Department of Veterans Affairs (VA) loans are only available to military veterans. These loans can sometimes supply 100% financing — that means no down payment is required by the borrower.

Down-Payment Programs

As you consider loan options, it is important to understand that the type of loan you get is not the only thing that will impact how much money you need to save up. For one thing, there are programs that can help you with your down payment so that you don’t need to save up as much as you may think. On the other hand, you may need to make sure to have money for closing costs, making accessibility modifications to your home, or other expenses.

Here are some ways you may be able to get help with your down payment:

• Some cities and counties offer financial help that may reduce your portion of the down payment to as little as 1% of the purchase price. The rules are different for every program, but usually you do not need to repay this financial help until you sell your home or you have finished paying off your original mortgage. In some cases, you may not have to repay the loan at all.
• Some lenders have programs that can help reduce your portion of the down payment to as little as 0.5% of the purchase price.
• Your family may be able to help with your down payment. Gifted funds are allowed on most types of loans. There are tax implications for the person supplying the gifted funds, but the amount of the gift is not usually limited.

Government Benefits

There is a lot of misunderstanding regarding government benefits and homeownership. Here are some facts:

1. No government benefit can be taken away because you buy and own your own home.
2. Some benefits, such as Supplemental Security Income (SSI) and Nutrition Assistance (formerly Food Stamps), may limit how much money you can have in your bank account, thus making it more complicated to save money for a down payment.

For people with disabilities who get SSI benefits, the basic problem is that they can only have $2,000 in resources ($3,000 if you’re married). This limitation makes it hard to save for a decently sized down payment. However, there are a few ways for you to get around this limitation:

• You can find a local down-payment assistance program.
• You can use gifts from other people for the down payment.
• You can save money in a federally funded Individual Development Account (IDA)

Individual Development Accounts (IDAs)

An Individual Development Account (IDA) is a type of savings plan for people with low income that is offered by nonprofit agencies in some Arizona communities. When you open an IDA, a special bank account is set up, and as long as your IDA is federally funded, all the money that is deposited into the account does not count towards the $2,000 resource limit ($3,000 for couples).

Note: There aren't as many IDA programs as there used to be. Some are still active, but it can take a bit of effort to find one that is accepting applications.

For most IDAs, the nonprofit agency will match your contribution. For example, if you deposit $25 per month, the nonprofit agency may also contribute $25 to your down payment, or perhaps even more. This makes an IDA a fantastic way to save! Not only are the funds protected, you basically get free money help with your mortgage as you go along.

An additional benefit of an IDA program is that participants get free credit repair and financial education classes that help prepare them for homeownership. These mandatory classes are a fantastic additional resource for first-time homebuyers.

There are some limitations with IDAs. Usually the maximum savings are limited to a few thousand dollars, and there is usually a period of time when monthly contributions are required — often 12 months or longer — before the money can be used for homeownership.

IDAs are discussed in more detail in the DB101 article on Individual Development Accounts.

So far, we have been discussing ways that anybody with a low income or limited savings can use to purchase a home. However, there is a whole different path to homeownership for people who get subsidized rent through the Section 8 program. It could be of particular interest for people with disabilities who get public benefits like Supplemental Security Income (SSI).

Section 8 Voucher Program

Let’s start by understanding subsidized rent. The U.S. Department of Housing and Urban Development (HUD) helps people with very low, low, and moderate incomes rent property in 2 main ways:

1. By supplying subsidized housing directly. If you qualify, you can live in public housing properties funded by HUD and pay below-market rent.
2. By paying most of the rent in private apartments or homes for qualified people with low incomes through the Section 8 program. If you qualify, you pay about 30% of your family’s adjusted monthly income as rent. The government pays the rest of the rent to the private landlord. A person or family who uses this program is given a “Section 8 voucher.”

Section 8 Homeownership Program

Although optional, some local Public Housing Authority (PHA) offices supply qualified applicants with the opportunity to use their voucher to buy a house instead of renting a place. If a Section 8 voucher holder buys a home through the Section 8 Homeownership Program, Section 8 helps with paying the mortgage instead of helping with rent.

If you buy a home through this program, you pay about 30% of your family’s adjusted monthly income as your monthly mortgage payment. The government pays the rest of the monthly mortgage payment. When the mortgage is fully paid off, you will be the owner of the home and the government has no further involvement. You won’t be on Section 8 anymore, but that is okay because you’ll own your own home and won’t owe anything on it!

Section 8 can be a great opportunity to buy a home, but there are several factors about it that you should keep in mind:

• You must already be a Section 8 voucher holder to participate in it.
• To apply for Section 8, you have to get on a waiting list that is open. Many waiting lists are closed and it can take several years just to get on the waiting list.
• The Homeownership Program is optional for public housing authorities (PHAs) and is not offered by all. Check with Arizona public housing authorities to see if they offer it.
• If you are buying a home in a place where there are lots of buyers and few people selling homes, it may take many attempts to get an offer accepted.

Most Public Housing Authorities (PHAs) will be able to refer you to local realtors and lenders who can help you. If they cannot or if you are researching this on your own, be very careful about your lender and realtor. It is important to have a lender and a realtor who know how the Section 8 Homeownership Program works in your area, who have relationships with the local Public Housing Authority staff that administer the program, and who understand the paperwork. This will help your purchase go more smoothly; it will also give confidence to home sellers that you are a capable buyer of their home.

There are a few other things to consider when thinking about the Section 8 Homeownership option:

• The housing authority sets standards that decide the amount of subsidy assistance (financial help) you can get. Generally, if you get more subsidy assistance, you can purchase a higher-priced home.
• You have to be very patient. From the day you sign up for the Section 8 Homeownership Program to the day you get the keys to your new home could be several years.
• It is difficult, but not impossible, to buy short sales or foreclosed properties with this program. In some areas where home prices are the cheapest, many of the homes for sale can be foreclosures or short sales.

You can read more about the Section 8 Homeownership Program in the DB101 article on Housing.

So far, we have looked at home-buying issues, strategies, and programs for people with low income or disabilities. Here, we’ll look at some numbers in a couple of real-life situations where people with disabilities bought their first homes.

Keep these important points in mind as we look at these numbers:

1. Programs and options change all the time and vary by location. Check with your local lender and realtor about what options are available.
2. These examples use numbers that were realistic in early 2012. Readers should not expect that interest rates and terms will be the same in future months and years. For example, interest rates on mortgages could rise in future years and that would raise loan payments.
3. For a calculator that can help you estimate how much a monthly mortgage payment would be for different loan amounts and interest rates, visit Bankrate.com.

Tom’s first Home: Buying a House with an FHA Loan

Tom gets a Federal Housing Administration (FHA) loan. He gets a 3% grant to help with the loan’s 3.5% down payment requirement.

Anita’s New Home: Buying a House with a Conventional Loan and a Down-Payment Assistance Program

Anita gets a regular nongovernment insured loan and help from a local city program to pay the down payment. Anita won’t have to repay the down payment assistance until she sells her house or has completed repaying her mortgage, whichever happens first.

Both Tom and Anita found homes that they could afford! Talk to a realtor to see if you can too!

David’s Story

David had never really thought about buying a home, figuring that such dreams were impossible for someone getting Social Security Disability Insurance (SSDI). This all changed on the day when he attended a home-buying workshop at a local blindness organization.

"They started talking about all these programs and strategies to buy a home and my ears perked up," he says. "I never thought someone living on disability benefits could ever own their own place, so it really caught my attention."

David started doing some research on how homeownership might affect his benefits. It didn't take long for him to realize that owning a home wouldn’t affect his SSDI benefits at all, because there’s no resource limit for people on SSDI. The hard part would be coming up with the money to make a down payment on a home.

So David started looking into various homeownership programs for people with low income. The best one he found was called an Individual Development Account (IDA) program. It was a matched savings program that helped people save money to buy their first homes. He thought it sounded too good to be true — every month he could save $100 of his SSDI benefits amount in his IDA. The nonprofit running the program would give a 2:1 match. That meant that for every $100 David deposited, the nonprofit would help him by giving an additional $200 when it came time to make his down payment! By the end of the year, he’d have a total of $1,200 in his account, and combined with the $2,400 the nonprofit would chip in, there’d be almost enough to make a down payment on a condo!

By doing the IDA program, David would also get free financial management classes. He knew that the added responsibility of owning a home meant he had to learn more about keeping track of his money. At the first class, he learned about credit scores. After class, he went home and checked his credit score online. David had always been a very responsible user of credit and always paid his bills on time, so he figured he’d have a great score. But there was a surprise in his credit report — there was a personal bankruptcy listed in it and that meant his score wasn’t as good as he had expected. David had never gone bankrupt, so he had no idea what was going on with his report!

He called up his IDA program to ask for their advice. They said that sometimes there are errors in credit reports and that you have to correct those errors. They helped him contact the credit reporting agencies and it turned out that David’s ex-wife had declared bankruptcy 8 years after their divorce. Her bankruptcy was put on his credit report by mistake! David filed a correction request with the reporting agencies and that fixed the credit problem and his credit score went up. After that, he made sure to keep a close eye on his credit report, because if there were negative comments on it, it could be hard to get a home mortgage.

When David had finished the IDA program and had $1,200 in his account and the promise of the $2,400 match from the nonprofit, he was ready to find a place to buy. With the help of the IDA program staff, David was referred to some local realtors with experience helping low-income homebuyers achieve their dreams. He interviewed them and chose his favorite. Then, David and his realtor began looking at condominiums in his price range. His realtor would pick him up at the train station. His realtor also understood that David wanted to find a home near transportation and shopping.

With his realtor’s help looking through the listings, David was able to find a good place. David remembers the first time he saw it, "It was great! Hardwood floors, granite counters, all stainless steel appliances, built-in washer and dryer." It met all of David's needs. It was a bit smaller than his apartment, but the space was much better utilized, so it actually felt bigger. The condominium also had access to a swimming pool and hot tub.

David bought it. The condo had sold in 2006 for $248,000, but with housing prices crashing recently, he was able to get it for $63,000 — a bargain! With his good credit history, David found a bank that would let him get a mortgage requiring only a 5% down payment, which was covered by his IDA savings and the $2,400 in matching money from the nonprofit. This all resulted in a monthly mortgage payment, including taxes and homeowners association fees, of less than $600 per month. David's rent in his ugly old apartment was actually $760 per month — more than what he now pays to own a home!

Today, as a very happy homeowner, David continues to work toward advancing his financial future. He has an internship at a local technology company and hopes to get a job at the same company when he gets his associate’s degree in Information Technology. He is even learning new skills by participating in his homeowners’ association meetings.