What Is a Soft Mortgage?

Using a soft mortgage can make buying a home more affordable.
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One way state governments can increase home ownership is through soft mortgage programs. This is a second mortgage with an interest rate often below the market rate. The soft mortgage fills the financial gap between the buying price and what the first mortgage doesn’t cover. Soft mortgages solve two of the biggest obstacles first time homebuyers face: making the down payment and paying the closing costs.

Eligibility Qualifications

Soft mortgages primarily target low and moderate-income homebuyers. It's only for first-time homebuyers unless you qualify for an exemption. Although some require a small down payment, others allow half of that amount to come from a gift or a grant. You can use a soft mortgage to buy a condominium, or a single, two or three-family home.

Income Limits

The income limit for soft mortgages is determined by the county and the number of people in your family. At the time of publication, the income for a four-member family in Santa Fe County, New Mexico, was $52,250 a year. If that same family lived in Grant County, the cap was $37,700. In contrast, Louisiana uses a sliding scale to determine income limits. For example, the income limit for a family of four in Orleans Parish ranged from $48,250 to $72,360 in 2013.

Asset Limits

The state also considers your assets in a soft mortgage arrangement. Checking and savings accounts, capital investments including stocks and bonds, and real property can't exceed the state's established amount. Basically, anything you're sitting on except college savings plans and retirement account values count as assets. At the time of publication, a Massachusetts resident couldn't hold more than $75,000 in assets.

Purchase Price Limits

The home you buy with a soft mortgage can be new or old as long as its under the state's purchase price limit. That set amount will change from one area to another. For example, in 2013 the price limit for a house in Los Alamos County, New Mexico, was $380,650, while about 36 miles away in neighboring Santa Fe County, the price limit was $427,500.

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