If you’re thinking about buying a home in the near future or are currently shopping and looking for affordable financing alternatives, one of the things that you may encounter is the CRA, CRA Mortgage or the Community Reinvestment Act.
Just what is it and how does it help economically challenged buyers like you turn your dreams of homeownership into a reality?
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CRA or Community Reinvestment Act is a law in the United States that encourages depository institutions such as your banks help meet the credit needs of individuals within areas of operation. Special emphasis is placed on meeting the needs of low-to-moderate income borrowers.
The CRA was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228) which was revised in May in 1995 and updated in August, 2005.
In order to ensure that the banks abide by the aim of the law, they are pushed to take their CRA performance seriously by using their CRA records as one of the evaluation criteria when they apply for new branches or when taking on mergers and acquisitions.
Regardless of their size, all depository institutions must report their CRA-involved activities to the designated regulators. These reports span:
- small business loans
- community development investments and loans as well as services for affordable housing
- mortgage loans specifically for low-to-moderate income borrowers
The banks’ CRA performance is measured by different bank regulators such as the Federal Reserve and the FDIC, among others.
The public is also encouraged to participate in a bank’s evaluation. The public may submit comments regarding a specific bank’s CRA performance. These comments will be taken into consideration during the bank’s next CRA examination.
Just to set things straight, there is no such thing as a specific CRA mortgage or CRA home loan program. The CRA in itself is a law, which aims to bring in affordable housing. So if you see a CRA Mortgage being advertised by a bank, know that you are looking at low-to-moderate borrower programs like the FHA or VA loans or Fannie and Freddie’s standard low down payment programs.
It is important to set this distinction to not be misled.
If you’re a home shopper looking for cheap mortgages and who may qualify as a low-to-moderate income earner, you may start looking into down payment assistance alternatives in your city or state.
Meeting your area’s low-to-moderate income standards may also open access to properties with sale prices that are below the market average.
Furthermore, you may also qualify for second mortgages in your area that don’t require payments.
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Determining your Eligibility
Your eligibility for these specialty programs can be determined by what is called an income threshold which varies widely from region to region and state to state. These thresholds are typically what lenders use to gauge a borrower’s eligibility for the programs.
The average income of individuals in a specific region is identified. Although there is no fixed figure as to what qualifies as low or moderate, having an income that is lower than 50 percent of the area’s average is generally considered “low.” If you earn more than 50 percent but lower than 80 percent, you are most likely to be categorized as a moderate earner.
Consult your local government’s office for this information. Or, you may speak with a local lender who can parse through options that specifically cater to your needs depending on your income category.