You’re sitting on the fence, waiting for the right moment to jump into this adventure called homeownership. You’ve met with a mortgage professional who reviewed your credit history and income status, pre-approved you for a mortgage, and explained the Good Faith Estimate (GFE) to you. Right then and there you came to the realization that your estimated closing expenses are enormously high. Which is really the reason why you’re still sitting on the fence, procrastinating, pondering whether or not you should go forward with your home purchase plan.
If the above scenario describes your situation, there is good news for you. It’s called the Community Reinvestment Act (CRA). The concept is simple: CRA was enacted by Congress in 1977, providing federal money to specific lenders who have proven that they follow ethical lending practices. This money is intended to entice lenders to make conforming mortgage loans in areas (CRA zones) that are considered to be “up and coming”, or are in need of further development. These funds can be used to help buyers lower their closing fees and/or interest rate to entice them to buy in areas specified by government.
What areas are considered CRA zones? There are currently 653 pockets of CRA zones in the City of Chicago. CRA zone eligibility changes quarterly, so it is imperative that the EXACT property address is known to determine whether or not a specific property is eligible. Please contact me so I can help you determine the CRA status of any property in Chicago that you are considering purchasing. The importance of confirming the exact property address cannot be stressed enough, as there have been examples of properties in the past that were eligible for this program, whereas properties across the street did not fall within a CRA zone.
How much money could be saved? In most cases, buyers are eligible for up to one full point of their first loan amount or $3,000, whichever is less. This will appear as a “Lender Credit” on the GFE and Settlement Statement (HUD-1). For example, if the purchase price of a property is $400,000 and the buyer is putting down 10%, the loan amount is $360,000. The buyer is eligible for $3,000 to buy down their interest rate or to help pay for his closing expenses. In some cases, the buyer may be eligible for up to one and one quarter point with no cap! For the above scenario of a $400,000 purchase price, the buyer could earn a credit of up to $4,500 to buy down the interest rate or to help pay for the closing expenses. In the event the CRA lender credit exceeds the total closing fees, buyers cannot walk away with cash from the closing.
What types of properties qualify? Single family homes, high- and low-rise condominiums, townhomes, 2-flats, and 3-flats. Commercial properties, 4-flats, second homes and investment properties do not qualify for CRA at this time. Caveat: In order for a buyer to qualify for CRA credit the buyer must owner-occupy the property.
What types of loans are available with CRA funds?
Conforming First Loans (Under $417,000)
- Fully Documented Loans
- Stated Income, Stated Assets Loan
- Fully Amortizing 30, 20, 15-Year Fixed, 3/1, 5/1, 7/1, 10/1 ARMs
- Interest Only 30-Year Fixed, 3/1, 5/1, 7/1, 10/1 ARMs
- 80-10-10, 80-15-5, 80-20 Programs
If the borrower requires a second mortgage, there are also programs available to help lower the second mortgage interest rate using CRA funds.
Is there a cap on how much buyers can earn in annual salary? No, there is no cap on annual gross income, at the moment.
There you have it. Time to jump off the fence, and enjoy the benefits of homeownership.
Information courtesy of Kristy Middling – Preferred Rate Chicago (a division of Guaranteed Rate, Inc.), and FFIEC.gov
