Real Estate Weekly May 28, 2021

INSIDE

This Issue

CAN YOUNG ADULTS EVER BUY A HOME? PAGE 5 IS A $25,000 DOWN PAYMENT ASSISTANCE GRANT FROM UNCLE SAM COMING? HERE’S WHAT WE KNOW – AND WHAT TO EXPECT PAGE 7 CLASSIFIEDS PAGE 7 MAY 28-JUNE 3, 2021

INSIDE

TABLE OF CONTENTS

PAGE

5

Can Young Adults Ever Buy a Home? ...............P5 Q&A

Ask Our Broker.......................................................................P6

Is a $25,000 down payment assistance grant from Uncle Sam coming? Here’s what we know – and what to expect .....................................P7 Classifieds............................................................................P7

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May 28, 2021

STAT Real Estate Stat

2.7% The decline of existing home sales in April 2021, the third straight month of decline.

Source: National Association of Realtors

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May 28, 2021

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n w d w a w f e

t a t n f a w h m

Is a $25,000 down payment assistance grant from Uncle Sam coming?

Here’s what we know – and what to expect

By Erik J. Martin

unit – available at closing to qualified first-time or a while, the real purchasers, per the Biden estate industry was Administration’s newly buzzing with the drafted “Downpayment news that lawmakers Toward Equity Act of were considering intro2021.” ducing legislation that This proposed financial would enact a refundable, incentive to buy a home, advanceable tax credit if signed into law, would worth a max of $15,000 be directed toward buyfor first-time home buy- ers who earn less than ers.

120% of the area median But in recent weeks, income where they reside that focus has shifted (or up to 180% in highaway from a tax credit er-cost locations); these to a grant with a higher folks would be eligible number: $25,000, in the for $20,000 in down form of down payment payment grant money. assistance – good toThose buyers identified as ward a one- to four-unit belonging to a group that home, condo, co-op, or has been “subjected to manufactured housing racial or ethnic prejudice”

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May 28, 2021

may qualify to receive an extra $5,000.

Limitations would apply: You must not have owned a home for at least three years, and neither your mother nor father may have been a homeowner (unless your parents lost their property due to short sale or foreclosure or if you were a foster care child).

Gay Cororaton, senior economist and director of Housing and Commercial Research for the National Association of Realtors in Washington D.C., says this proposal is designed to put financially challenged families on the path to homeown-

ership.

“I think there are strong social justice and economic arguments for a down payment assistance program. The beneficiaries are low-tomiddle-class families, and this bill helps them attain homeownership that is so essential for increasing income and wealth equity across income and racial groups,” she says. “The arguments for providing down payment assistance so that these families can accumulate wealth through homeownership go beyond party lines, so I think there’s a pretty good chance this bill will get enacted.”

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Cororaton points out that homeownership is the largest source of wealth – typically accounting for 90% of a family’s total assets.

However, with the median existing home sales price currently being $310,000, first-time buyers likely need to save around $31,000 to cover the down payment (usually 10% or more) needed. Add in closing costs (another 3%), and nearly $40,000 is required in hard cash at the closing table.

“First-time buyers also have to compete with second-time purchasers, who have more financial power in part from the equity they’ve accrued on their first home. So the playing field between first-time and non-firsttime buyers is not even,” adds Cororaton. “Giving $25,000 in down payment assistance provides a greater chance for firsttime buyers to own and start to build up equity.”

Kari Brummond, tax preparer and lead accounting writer for Trumbull, Connecticutbased TaxDebtHelp.com, isn’t as confident that this legislation will pass both the House and Senate.

“No Republicans voted for the recently passed American Rescue Act or the Housing and Economic Recovery Act of 2008, and they aren’t likely to support this type of legislation either,” says Brummond. “By extension, Democrats in Congress will need to be 100% united if they want to pass this legislation, and that can be challenging. It will need

to happen before the next midterm elections in November 2022, as House Democrats will be unlikely to hold onto their majority and get this bill to pass.”

Eric Nerhood, owner of Premier Property Buyers in Seal Beach, California, also has doubts, as well as questions about the requirements.

“It says that the assistance is limited to those who have not owned a home for at least the last three years,” he says. “But if they’ve owned a home before, how can they be considered first-time buyers? Also, what do the finances of your parents have to do with you? And while the socially disadvantaged due to racial or ethnic prejudice could receive an extra $5,000, what about the disabled or the LGBTQ+ communities – aren’t they considered economically disadvantaged as well?”

Until this newly introduced legislation passes – which is far from certain – it may be wise for prospective first-time buyers to sit things out until the market proves more favorable.

“The odds of finding truly affordable housing in this country today are almost nonexistent. If you’re looking to purchase your first home, your best bet may be to wait until prices fall,” suggests Nerhood. “If people rush to purchase now because they believe this down payment grant is a sure thing, they could end up being very sorry they did.”

5

Waiting for Lower Premiums Question:

We have been looking at FHA financing and think the insurance premiums are really high. Our loan officer says premium costs might come down this year. Is that really possible? Should we wait for lower premiums?

Answer:

It’s possible that FHA premiums will decline — but no, you should not wait for such a reduction to take place.

With FHA insurance you can borrow mortgage money with 3.5% in most cases instead of the 20% up-front that lenders ideally want. For many buyers this means you can purchase now and likely avoid possibly-higher prices in the future.

However, FHA insurance is not free. At this time there are two premiums associated with the program. First, borrowers pay 1.75% of the loan amount (the up-front mortgage insurance premium) at closing. This cost can be paid in cash or added to the loan. Second, the FHA has a .85% annual insurance premium.

These fees add up. If you buy a $250,000 home the FHA costs include $4,375 up-front as well as $170.89 per

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month or about $2,050 per year.

Premiums collected by the FHA go into a reserve account that must equal 2% of the loan balances it insures. In fiscal 2020 the FHA reserve reached 6.1%, three times the necessary amount.

Because FHA reserves are so high there’s good reason for the government to consider lower premiums. Also, because the FHA is a federal insurance program, political realities cannot be ignored.

An analysis by Bose George, Thomas McJoynt-Griffith, and Michael Smyth with the investment banking firm of Keefe, Bruyette & Woods, noted in January that the FHA had announced a .25% premium cut “under the Obama Administration in late 2016. This was reversed by the Trump Administration before it went into effect. Given that background, it is quite possible that this cut will be back on the table.”

However, before a premium cut can be undertaken the economy has to stabilize. The reason is that the FHA program has many delinquencies as a result of pandemicrelated unemployment. According to the Mortgage Bankers Association, at the end of 2020 “the seriously delinquent

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Q&A

ASK OUR BROKER

By Peter G. Miller rate (the percent of loans that are 90 days or more past due or in foreclosure) reached record highs for FHA and VA loans at 11.19% and 5.96%, respectively. The conventional seriously delinquent rate of 3.69% was three times lower than the FHA rate, and over 1.5 times lower than the VA rate.”

Are the FHA delinquencies a major problem? At this writing we don’t know. It may be that many borrowers will easily exit their delinquency issues. This is possible because under the nationwide FHA foreclosure moratorium borrowers can avoid the loss of their home by re-starting their monthly payments and adding unpaid debt to the end of their loan. When the property is refinanced or sold the additional debt is likely to be paid off in full because of rising home values and strong real estate demand.

At the end of March, HUD Secretary Marcia Fudge said she had “no near-term plans to change FHA’s mortgage insurance premium pricing.” However, FHA premiums are sure to be re-examined once the foreclosure moratorium ends and HUD can see the real impact on the FHA program.

Email your real estate questions for Mr. Miller to peter@ctwfeatures.com.

May 28, 2021

Real Estate Weekly

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Can Young Adults Ever Buy a Home? standards for mortgage approval, or increasing down payment assistance programs, like those ny Millennial [that includes anyone cur- listed at downpaymentresource.com. rently age 23 to 41] who is a homeownLast year, 28 percent of 22 to 30 year-olds er is blessed with a generous relative, had a cash gift or a loan that allowed them to or patience, or creativity– or a combination of purchase. these.

Most other achieve the elusive goal by other The National Association of Realtors [NAR} means: has been profiling home buyers since 1981 – Long slog when first-time buyers averaged age 29.

Earning more or spending less is the route to In 2020, 48 percent of buyers aged 31 to 40 financial goals, but both options “are difficult were first-timers. choices,” says Jacqueline Schadeck, an Atlanta Going forward, owning a home won’t be as certified financial planner. The side-job and much a marker into adulthood as a middle-age spending sacrifice aren’t quick, either. Millenachievement, predicts the non-profit Urban nials who bought last year reported that their Institute {UI}. The only way to lower the age homeownership goal was delayed by three years of entry – and boost overall homeownership – due to their student debt, which was a median is with big policy changes like re-engineering of $33,000.

By Marilyn Kennedy Melia

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Mortgage solutions Sometimes, an aspiring buyer may be close to getting the nod from a lender, and an extra step, like convincing a relative to co-sign [meaning they don’t contribute money but are liable for the loan if the borrower defaults], gets him approved, says Tom Balcom, owner, 1650 Wealth Management, Lauderdale-by-the-Sea, Fla. But it can take asking several lenders to find one who’ll approve, he adds.

Double up Last year, nine percent of all buyers were unmarried couples. Undoubtedly, many were romantic partners.

But for legions of other singles, “the only way to buy is to do it with someone else,” says Nikki Merkerson, founder of PairGap.com, a site providing information on purchase partnerships.

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