Blogger Elizabeth Elstien discusses the ins-and-outs of down payment assistance.
In many areas, home prices are increasingly out of touch with the income of most residents. Even those in a two-income household can have trouble saving enough for both a down payment and closing costs. Single renters may have a harder time saving for homebuying financing charges. Since the Great Recession, lenders are still a bit tight on mortgage approval. In short, loans don’t come easy.
Know Your Area’s Home Price Ratio
Comparing average income to average home prices indicates the housing affordability of a given town or city. The higher the ratio, the harder it is for average buyers in that area to get in the market and own that dream home. Numbeo.com has compiled a home price ratio for 2017: Those in booming Brooklyn are facing one of the highest income to home price ratios in the United States at 13.64 percent, followed by San Francisco at 12.11 percent, and Honolulu at 10.01 percent. Cities such as Chicago (3.55 percent), Omaha (2.99 percent), Houston (1.93 percent), and Detroit (1.25 percent) have lower ratios, making it easier to save for and purchase that townhouse you want. Finally, homeownership is growing increasingly prohibitive in Boston (7.55 percent), Miami (6.64 percent), and Seattle (6 percent).
Learn about Local Homebuying Assistance Programs
If your area has a tough home price ratio, don’t panic! There is a homebuying hack for this problem. It requires some work on your part but can pay off big in the long run.
Homebuying assistance has been in existence for decades, but few know about it. This assistance, typically administered by a nonprofit that oversees a myriad of housing programs, is dependent on locality and funding. First come, first served is the norm, so plan ahead and start the process early.
Each agency manages its own programs from loans (often called grants) to savings plans. Programs for first-time homebuyers are common; some areas offer services specifically for teachers, firefighters, hospital workers, or police officers. A government incentive program for rural homeownership is also available through the U.S. Department of Agriculture.
Look for an Individual Development Account (IDA)
An IDA is a specialized savings plan that matches the amount you have put away. For instance, HomeTeam in New Hampshire matches eight times what you have saved, so if you save $1,000, it will be matched with $8,000—giving you a total of $9,000 to use for the purchase of a home. You must meet their low-income eligibility requirements and follow their program prerequisites, which typically include classes on budgeting and finance, to get the match money.
Don’t expect the same match amount elsewhere, as IDAs have different match amounts that vary by locality. Search the website of the Corporation for Enterprise Development to locate your nearest IDA-sponsoring agency.
Research Down Payment and Closing Cost Assistance
Down payment and closing cost assistance programs are essentially loans that help with the costs associated with a home purchase. This loan is considered a second mortgage loan on the home, or a “silent second.” You must qualify for the low-income program. Some programs require you to live in the home for a certain number of years.
As an example, the Tallahassee Lenders’ Consortium Inc. in Florida gives qualified homebuyers down payment assistance secured by a second or third mortgage loan at zero interest and no required payments. Loans are due when you sell or refinance the home, pay off the first mortgage loan (30 years for most), or cease to live in the home as your primary residence, as well as under bankruptcy, foreclosure, or abandonment. Buyer’s Broker Frederick Griffin of Shell Point Beach, Florida, worked with a buyer using this program and recalls that, “everything went well; we went to closing on time.”
Diana White-Pettis of Exit Bennett Realty in Upper Marlboro, Maryland, says that in Prince George’s County, closing cost and down payment assistance are regularly offered and are quite successful. “The buyers have experienced very little, if any, problems with the program,” she reports, “so long as the participating lenders get the required documents in on time.”
These homebuyer incentives are well established: Phoenix Property Shoppe Realtor Anna “Banana” Kruchten of Arizona remembers positive dealings on transactions using this assistance in her area about 10 to 15 years ago, showing such programs have real staying power.
Check if You Qualify for Homebuying Assistance
Homebuying assistance programs come with strict criteria that varies by location, but tend to include:
- Credit score of at least 580
- Qualifying income guidelines
- Coverage of only certain types of properties
- Property used as primary residence and owner-occupied all year
- Use of agency-approved lenders
- Maximum property sales price.
To learn about homebuyer assistance agencies where you want to live, the U.S. Department of Housing and Urban Development has you covered. Pick your state and town on this government website, do your research, and start saving for your first home.
Using her 14 years of experience as a Realtor® and property manager, Elizabeth R. Elstien is a real estate writer, educator and consultant. Follow her Real Estate News & Views blog at www.eElstien.com.
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