Municipal bond issues are providing a source of mortgage money for home buyers.
The special advantage to borrowers is that municipal bonds pay interest that is tax-free from federal income taxes. Knowing this, bond investors will accept a lower rate of interest than they would if the interest were taxable-as it normally is on mortgage loans. This savings is passed on to the home buyer. Those who qualify will typically pay about 3% less than if they had borrowed through conventional channels.
The objective of such programs is to make home ownership more affordable for low and middle income households. Also, some cities stipulate that loans must be used in neighborhoods that local officials want to revitalize. The bonds themselves are not backed by the full faith and credit of the municipality sponsoring them, but the mortgages made with them do carry mortgage insurance. Loans are made by local lenders who are paid a fee for originating and servicing these loans. Although popular with the real estate industry, the U.S. Treasury has been less than enthusiastic about the concept because it bears the cost in lost tax revenues. As a result, legislation has been passed that limits the future use of this source of money.
Municipal Bond To Other Hard Money Mortgage Lenders