Statistics and indices have indicated that buying a home has become more affordable in recent years. In fact, the October 2014 Trulia Rent vs. Buy Index indicated that buying a home was 38% cheaper than renting (trulia.com). Additionally, the S&P/Case-Shiller National Home Price Index released December 30th indicated that average home prices for the 10-City and 20-City Composites are at “autumn 2004 levels” (housingviews.com). However, while interest rates continue to be favorable along with an expanding inventory that offers more choices, obstacles remain to home ownership.
Unlike the high home prices that drove affordable housing concerns in the past, many would-be home buyers today face income and savings challenges. Statistics suggest that many do not earn enough to qualify for a home purchase and/or have not saved enough for a down payment and closing costs. The latest report (Q2 2014) of the Maryland Association of Realtors® First-time Homebuyer Affordability Index revealed a decrease in home affordability from 84.1% to 75.7%; which indicates that Maryland first time home buyers had 75% of the income required “to purchase a typical starter home” (mdrealtor.org).
More importantly, a survey conducted by the Consumer Federation of America (7th Annual Savings Survey Reveals Persistence of Financial Challenges Facing Most Americans; February 24, 2014, consumerfed.org), revealed that “most Americans are meeting their immediate financial needs but are worse off than several years ago.” And, “… that, despite the economic recovery, most Americans continue to face significant personal savings challenges….” Stephen Brobeck, Executive Director of the Consumer Federation of America and a founder of America Saves, was quoted to say: “Only about one-third of Americans are living within their means and think they are prepared for the longterm financial future. One-third are living within their means but are often not prepared for this longterm future. And one-third are struggling to live within their means.”
With an eye to address housing affordability, the President reduced the FHA annual mortgage insurance premium (MIP). Increases in FHA’s MIP in recent years have helped offset losses from the foreclosure crisis; and inadvertently made mortgages more expensive. And although the recent MIP reduction helps more home buyers qualify, critics claim it increases FHA’s risk and exposure to future foreclosure losses. According to Zillow (How Much Can You Save with Lower FHA Annual Mortgage Insurance Premiums?; January 7,2015, zillow.com), a home buyer who has a 3.5% down payment on a 30 year mortgage of $175,000 can save about $818 per year (about $68 per month).
For those who have not saved enough for a down payment and closing costs, State and local initiatives offer down payment assistance and low interest rate mortgage programs. The Maryland Mortgage Program (mmp.maryland.gov) offers down payment assistance in the form of loans, an employer match program, or financial grants. Locally, the Housing Opportunities Commission of Montgomery County (hocmc.org) offers several down payment assistance options, including the House Keys 4 Employees program for many Montgomery County Employees. These programs have restrictions; you should check with each program for qualification and eligibility requirements.
The Montgomery County Department of Housing and Community Affairs (montgomerycountymd.gov/DHCA) offers additional affordable housing options: The Moderately Priced Dwelling Unit (MPDU) Program offers affordably priced homes to first-time home buyers who meet the program’s eligibility; and the Work Force Housing Program promotes “the construction of housing that will be affordable to households with incomes at or below 120% of the area-wide median.”
By Dan Krell
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.