A mortgage is a loan secured by a real estate property that the borrower agrees to repay according to a predetermined set of terms. A bond is a type of investment that delivers fixed payments at regular intervals as a result of a loan made to a borrower, which is usually a corporate or government entity. When these two financial instruments intersect, one result is a mortgage revenue bond loan. A bond loan is an excellent way to buy a home when money is tight. Understanding how to get a bond loan can help low- and moderate-income borrowers make the leap from renting to owning a home.
How to Get a Bond Loan
As the National Council of State Housing Agencies explains, state and local housing finance agencies sell tax-free mortgage revenue bonds to interested investors. Programs vary by state. At a minimum, each state issues bonds totaling $310.71 million. The upper limit that a state is allowed to issue is determined by population; in 2018, multiplying the state’s population by $105 revealed the maximum amount that could be issued in mortgage revenue bonds. But how does that funding become bond loans? Why are they so appealing? And what do aspiring homebuyers need to do to secure a bond loan?
How Bond Loans Work
Making homeownership an attainable dream for people at all income levels has long been a goal of federal, state, and local governments. The bond loan is one tool is this ongoing quest. Basically, state and local government sell mortgage revenue bonds to raise money that can be used to finance affordable mortgages. As Financial Web reports, the mortgages aren’t issued by the government entities. Instead, they are issued by approved private lenders and partially backed by the government. Because this backing makes the loans safer for lenders, they are able to offer more generous terms and extend loans to borrowers who might not otherwise qualify for a mortgage.
The Benefits of Bond Loans
According to Investopedia, bond loans are often considered a win-win financial tool because there is real potential for everyone involved to benefit:
- Investors who purchase mortgage revenue bonds enjoy a reasonably safe, tax-free investment.
- Housing finance agencies get a reliable source of funds from the sale of mortgage revenue bonds, which allows them to continually fund mortgages.
- Lenders are able to offer affordable loans to a wider range of clients without taking undue financial risks.
- Aspiring homebuyers who meet the program qualifications are able to secure mortgages that come with significant advantages like lower interest rates or cash assistance with their down payment or closing costs. These loans ultimately make homeownership more accessible and more affordable.
Securing a Bond Loan
If you’re approved for a bond loan, you’ll be able to secure a 30-year, fixed-rate mortgage loan with a low interest rate that will help make your monthly payments more affordable, so learning how to get a bond loan can be an important step in your journey toward homeownership. As SmartAsset indicates, tens of thousands of Americans have enjoyed the benefits that bond loans can provide.
Because these loan programs are run by various housing finance agencies, the exact process for securing a bond loan will depend on your location and the terms of the programs there. Generally, you’ll want to start by finding a participating lender who can educate you about your options and guide you through the process. The lender will be able to explain the requirements and help you determine whether you meet them. What are these requirements? While they vary from state to state, Financial Web notes that the following are some common requirements for bond loans:
- The borrower’s income must be below a certain threshold; this is usually 115 percent or less than the area’s median income.
- The borrower must have an appropriate credit history.
- The borrower must intend to make the home their primary residence.
- The borrower must be planning to purchase an appropriate property.
- The borrower must be a first-time homebuyer to qualify with many programs, but some are willing to waive this requirement.
If you have questions about how to get a bond loan, turn to the loan experts at PrimeLending of Kansas City for clear, reliable answers. By offering our borrowers personal attention, straightforward guidance, and transparency, we make navigating the home financing process easy. This allows you to move forward with confidence as you achieve your housing goals. Whether you’re buying your first home, interested in refinancing or funding renovations to your existing home, or ready to make the move to a new home, we’re ready to assist you. To learn more about bond loans or explore other loan options, contact us today.