What is a NIFA Loan?
A guide to buying a home in Omaha for as little as $1,000 down.
What is NIFA?
NIFA, the Nebraska Investment Finance Authority, is a Nebraska state government office with several responsibilities. One of the most important of these is to issue loans to homebuyers.
Not everyone buying a home can qualify, and not all homes are eligible, but for those that meet the requirements, a NIFA loan offers significantly better terms than a mortgage from a bank. In this post, we will explain the specifics of a NIFA loan, what you need to do to qualify for a NIFA loan, and what kinds of houses qualify as valid for a NIFA loan.
It’s a program that homebuyers should be aware of, because if their purchase of a house is eligible then they can save a considerable amount of money and reduce the size of their down payment.
How NIFA works
A NIFA loan is a loan that comes from NIFA instead of a bank. The actual institution that handles the logistics of the loan is still a bank - they act as an intermediary for NIFA, which is lending out the money. So to obtain a NIFA loan, you need to find a local mortgage lender, like a bank or credit union and ask if they handle NIFA loans.
NIFA loans have lower interest rates than bank mortgages, and NIFA also has a program to provide assistance with the down payment. NIFA can provide up to 5 percent of the selling price of the home for you, the buyer, to use towards the down payment or closing costs. If you accept this assistance, you must take out a second mortgage with an interest rate of 1 percent and put up a minimum of $1,000 towards the down payment from your own money.
How to qualify for the loan
To qualify for a NIFA loan, you must satisfy several requirements.
First, the home you are purchasing must be your primary residence.
Next, you must be a first-time homebuyer. That means you have not owned your own living space for the past three years. There are some exceptions to this rule: if you lost a home through divorce, a natural disaster, or a job relocation, you might still qualify. Mobile homes do not count towards owning your own living space if you lived in one and it still had wheels and road gear and was free to move, rather than being anchored in place. Also, the 3-year rule does not apply if you are a Qualified Veteran who has been discharged from the service under conditions other than dishonorable or you are purchasing a home located in a target area.
Then, you need to meet an income requirement. If the combined income of everyone in the family is above a certain threshold, then you cannot take out a NIFA loan. The threshold varies based on how many people are in your family and which county the home is located in. You can see the current income requirement at this link. As a borrower, you need to pass a credit check, and the loan cannot create a debt to income ratio greater than 45 percent.
In addition to NIFA’s program eligibility requirements, credit underwriting guidelines such as minimum credit scores and maximum debt-to-income (DTI) ratios (differs depending on the type of loan) still apply. A credit score is used by Participating Lenders to determine the creditworthiness of a borrower. The DTI ratio is calculated by taking your total monthly expenses and dividing them by your total monthly gross income. A Participating Lender will help you determine if you meet all of NIFA’s program eligibility and credit underwriting guidelines.
Finally, NIFA requires all occupying borrowers who are responsible for repaying the loan to complete an approved homebuyer education class prior to closing. The homebuyer class provides the greatest benefit when taken early in the home buying process (before searching for a home). While NIFA encourages all first-time homebuyers to take a face-to-face education class, unless otherwise stated, online classes are acceptable. Check out this list of approved classes. There may be some situations where the provider charges a fee for the class. You can contact the NIFA Homeownership Team by phone at 402-434-3900 or email at firstname.lastname@example.org with any questions.
Which homes qualify for the loan
Homes located in Nebraska are eligible subject to the following purchase price limits:
You must occupy the home as your primary residence within 60 days of loan closing. For 2-4 units, NIFA will include net rental income in your total household income. 2-4 units must be at least 5 years old unless the unit is a duplex located in a target area. If you are buying a home from a relative, the greater of the purchase price or appraised value cannot exceed the maximum limit.
There is an additional benefit if the home is located in what NIFA calls a “targeted area”, which is one of Adams County, Douglas County, Jefferson County, Lancaster County, or Scotts Bluff County. A home in a targeted area has a higher limit for price and family income, so more people and more homes qualify. If you want to buy a home in a targeted area, then you do not need to be a first-time homebuyer to qualify for a NIFA loan.
Because NIFA is designed to facilitate homeownership, the home cannot be used for renting, and no more than 15 percent of it can be used for business. Furthermore, NIFA loans cannot be used to refinance a mortgage on a house you already have- they apply to the purchase of a new home.
Why take a NIFA loan?
NIFA offers competitive interest rates, low or no down payment loans, low mortgage insurance premiums for conventional loans, and loans for down payment and closing cost assistance. You can see the current rates at this page.
Securing a NIFA loan will definitely help in lowering your monthly payments, increasing your buying power, saving a significant amount of money over the lifetime of the loan, and most importantly, removing barriers to homeownership.