How To: Find Affordable Housing

In most areas of the U.S., housing costs are rising faster than wages. To meet the federal government’s definition of housing affordability, costs should not exceed 30 percent of household income or 60 percent of the area’s median income. Looked at it this way, the issue of affordability becomes very personal. What may be affordable for some will not necessarily be affordable for all.

Financing a Home

Virtually all people purchasing homes are doing so with money borrowed from a bank or mortgage company. A mortgage is a legal agreement between buyer and lender that uses the house being purchased as collateral or security for the loan. Before lenders loan money for a house, they make sure that the buyer has enough monthly income to cover the costs of principal, interest, property taxes, and insurance (PITI). Most mortgage programs require that those payments not exceed 30 percent of the borrower’s monthly income. To keep the monthly payment affordable, a buyer might have to raise $25,000 or $30,000 for a down payment. For many first-time buyers, this kind of cash is out of reach.

Help Is Available

If you cannot find a home in your community that you can afford using traditional mortgage formulas, look into special programs to assist first-time homebuyers. A variety of programs have been spawned to help people get into home ownership. Some of the programs are federally sponsored, some are state-sponsored, and most rely on a mix of federal, state, and private funding subsidies to make them work.

Much of this assistance is tailored to people at or below the area median income (AMI). Some of the programs offer low-interest financing, down-payment assistance, or both. There are also programs designed to keep housing affordable by offering limited or shared equity clauses that restrict the future resale price of the home. Generally speaking, the more assistance one accepts, the more restrictions there will be on the terms of ownership or resale.