Can you use the Section 8 Program to buy a home?
The Section 8 Program -- also known as the Housing Choice Voucher Program -- provides monthly voucher payments that enable eligible participants to afford housing. The program is offered through local housing agencies and focuses on lower income, elderly and disabled applicants. While the program is usually associated with renting a home, you may not know that you can also use the Section 8 Program to help you to buy a home.
There are several unique aspects of the Section 8 Program that can help you qualify for a mortgage. First, your Section 8 payment voucher is counted as income when you apply for the loan.
If you do not pay taxes on the voucher, then mortgage lenders “gross up” your payment amount, which means they include a higher income amount in your mortgage application than you actually receive.
If you can provide a document that confirms that your Section 8 voucher is not taxable, lenders typically add an additional 25% to your monthly income. For example, if you receive a $1,000 monthly voucher that is not taxable, the lender uses $1,250 for your Section 8 income when you apply for the mortgage ($1,000 + 25% * $1,000 = $1,250). If you are in a higher tax bracket, the lender may add a higher amount to your income.
The voucher payment is added to any other monthly income you receive and included in your loan application. For example, if the lender includes $1,250 in Section 8 voucher income and you earn $2,000 a month from your job, the total monthly gross income for your mortgage is $3,250 ($1,250 (voucher) + $2,000 (job) = $3,250). The higher your monthly income, the higher the mortgage amount you can afford.
Use ourHOW MUCH HOME CAN I AFFORD CALCULATORto determine the home you can buy based on your monthly income, debt expenses and down payment
Another benefit of using the Section 8 Program to buy a home is that you can use the payments right away to qualify for a mortgage. Unlike other sources of income, you do not need to receive the voucher payments for multiple months or longer before you can include them as income in your application. Additionally, you do not need to verify that you are scheduled to receive the Section 8 payments for three years like other types of income.
To use the Section 8 Program to qualify for a mortgage, you are only required to provide an official letter or similar program document that outlines the terms of your payments including the voucher amount and if the payments are taxable. These relatively streamlined requirements are designed to make it easier to use the voucher income when you apply for a mortgage.
We should also highlight the Section 8 Program can be combined with a no or low down payment mortgage program, which can make owning a home more affordable. These programs enable you to qualify for a mortgage with a down payment ranging from zero to 3.5% of the property purchase price, which is lower than the standard 20% you typically need to put down.
Review Best Low Down Payment Programs
Although you are also required to pay closing costs and potentially hold financial reserves at closing, a low down payment can significantly reduce the funds you need to buy a home.
Additionally, you may also be eligible for a down payment assistance program or closing cost grant. When combined with a low down payment mortgage, these programs can enable you to buy a home with minimal personal financial contribution.
Review How Down Payment Assistance Programs Work
Similar to Section 8, homebuyer assistance programs are typically provided by HUD-approved local housing agencies in conjunction with participating lenders. I have provided a link to the HUD website below where you can select your state to learn more about available programs.
In closing, Section 8 voucher payments can help you get approved for a mortgage. In fact, this program offers several advantages relative to other types of housing assistance when it comes to buying a home.
While the Section 8 Program is provided by local housing authorities, you apply for the mortgage with traditional lenders such as banks, mortgage brokers and credit unions. We recommend that you contact multiple lenders in the table below to understand their qualification guidelines and to find the best loan terms. Shopping lenders is the best way to save money on your mortgage.
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Sources
"B3-3.1-09, Other Sources of Income, Public Assistance Income, Verification of Section 8 Payment Vouchers." Selling Guide: Fannie Mae Single Family. Fannie Mae, October 2 2019. Web.
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