Community Reinvestment Act Overview
"CRA" is a common term that you will hear about mortgage lending in low to moderate-income areas. So let's find out what CRA is and how it applies to mortgage lending in low- and moderate-income areas.
What Is The CRA?
The acronym CRA stands for Community Reinvestment Act. This law encourages banks to meet the credit needs of communities in which they make deposits. It focuses on the credit needs of low and moderate-income communities.
The CRA was established in 1977. It has been revised in May 1995 and August 2005. Various bank regulators evaluate a bank's CRA performance, including the Federal Reserve, the FDIC, and others.
Banks are encouraged to be strong in CRA performance as regulators will consider the bank's engagement with CRA when they approve applications for new branches or mergers and acquisitions.
No matter how large the bank, all banks must report CRA lending activity to regulators.
Small business loans can help with economic development
Affordable housing loans, investments, and community development services
Mortgage loans are a way to support homeownership in low- and moderate-income communities.
What Does CRA Have To Do With Mortgages?
This last activity, mortgage lending under CRA, requires some clarification. Technically, there's no "CRA mortgage" that is specifically for low- and moderate-income borrowers.
This is because CRA doesn't exist as a loan program. Instead, it's a set of rules that encourage banks and other financial institutions to make loans to low- or moderate-income borrowers.
This distinction is important because promotions might be made for "CRA Mortgages." It's just a marketing term. Standard bank programs include:
FHA or VA loans allow for lower down payments and lower credit scores.
Fannie and Freddie loan programs allow for lower downpayments
If you are eligible for the local housing incentive programs of your county or city, such as:
You can buy properties at a discounted price
Assistance with a down payment from the county or city
Second mortgages in the same city or county, which don't require payment
Income Thresholds
A housing office will be associated with the mayor's office in your city. This office will provide information. These programs will generally have income thresholds that determine whether you are eligible.
The median family income in lower-income areas as compared to the median income in a larger area to create income thresholds.
Suppose your income is less than 50% of the region's median family income. It is generally considered moderate if you earn between 50 and 80 percent of the median household income in your area.
These rules will help banks offer loan products tailored to your needs if you believe your income falls within these categories.
It is best to contact a local lender to determine your options and inquire if they offer special programs for homebuyers with low- or moderate incomes.
