Needs of First-Time Buyers

Needs of First-Time Buyers By Ron Smith We may soon be asking Where did our children go and why hasn’t that server brought me my food yet? Current Market Conditions homes listed under $200,000 in Bend & Deschutes River Woods  22 of those homes manufactured  33 homes between $200,000-$250,000  Average sales price $310,443 thru 2nd quarter of 2005  Median sales price $258,00 thru 2nd quarter of 2005  24 Cost of Home Example  If family of four earned the maximum income allowed for the OH&CS Bond Loan Program of $58,600 using a standard 33/40 debt-to-income ratio they could afford a home of $228,500.  Estimated P.I.T.I would be $1,611.34 a month.  It would require 2 wage earners earning an average of $13.64 an hour or one wage earner making $27.28 an hour. Cost of Home Example #2 a single person earning 80% of the median income in Deschutes County which is $32,500 a year wanted to purchase using the same rate and debt-toincome ratios.  Could afford a home for $125,000 with a P.I.T.I of $891.39 a month  They would have to earn $16.19 an hour.  If Reality Check A person earning $10.00 an hour could only afford an $80,000 home How Are First-Time Buyers Still Buying? are turning to unconventional financing methods like sub-prime loans  A typical loan would be a 1st mortgage of 80% of the homes value and a 2nd mortgage for the additional 20% and financing 100% of the homes value  Many characteristic of the Sub-prime Loan       First mortgage has a fixed payment of only 2-3 years. 2nd Mortgage is amortized over 30 years but is due in 15 years. Both loans have a 2-3 year prepayment They generally are choosing a interest only option on the first mortgage Are a stated income or no ratio loan At the end of the initial 2-3 years becomes a one-year adjustable rate mortgage Example of a Sub-prime Loan  Sales Price $228,500 Loan Amount Rate Payment 1st Mortgage $182,800 7.000% $1,066.33 2nd Mortgage $ 45,700 10.450% $ 231.56 Est. taxes $ 214.22 Est. Ins. $ 40.00 Total Payment $1,552.11 Current Libor Index 4.200% Margin on loan 6.000% This is based on a buyer having a 680> credit score Income Needed to qualify: Just need to be employed. Example of Loan In 2 years Assuming Libor Index remains at 4.200% Loan Balance Rate $182,800 10.185% $ 45,212 10.450% Payment $1,551.52 $ 231.56 $ 252.54 $ 40.00 $2,075.62 1st Mortgage 2nd Mortgage Est. taxes Est. insurance Total Payment Needs of the First-time Buyers family members  Receive an inheritance  Family members co-signing  Partnering with someone to become partners in purchasing a home  Moving to an area of affordable housing and competitive wages  Rich Needs of First-time Buyers local wages in line with local housing prices  Affordable housing projects such as land leases  City recruiting business to relocate to Bend that pay higher wages  Public transportation  Lower land, building and permit costs  Higher Needs of First-time Buyers and closing costs assistance programs  Gap Financing  Downpayment Gap Financing: I believe we are at a point we have outpaced all the available resources that have in the past assisted first-time homebuyers. With the rampant appreciation in home prices we are experiencing. We can no longer assist the people who has less than 120-150% of median income Gap Financing Basics financing is a loan program usually a 2nd mortgage that makes up the difference between the amount of loan the buyer can qualify for and what the home costs.  It has been used in many cities across the country to assist their first-time buyers.  Gap Example of Gap Financing Price $228,500  Buyer qualifies for a loan of $175,000  Difference $53,500  Buyer would obtain a loan in the amount of $53,500 dollars to complete the purchase.  Sales Loan Characteristics or silent 2nd loan with no payments  Loan may have interest that accrues  Loan may have a shared appreciation (SAM)  When the buyer pays off the loan or sales the home they pay back the original loan, any interest that accrues and a percentage of the homes appreciation  Soft Ways To Fund Gap Loans grants  City of Bend CDBG Program  Transfer tax on home sales  Bedroom tax on new home sales  Property taxes  Business taxes  Government Leveraging Other Programs non-profit housing agencies  Federal/state and local subsidies  Lender/Bank CRA programs  City of Bend incentives to builders if they build one affordable home out of a number of homes they build  Tax abatements  Local donations and material discounts  Local Who Qualifies buyers at or below 100% of median income  Must have attended school in Bend or have been a residence for a certain period of time  Qualify for bond,conventional or FHA financing  First-time In Closing  If we do not do something soon we may be waving goodbye to our children as they leave searching for the American dream of homeownership somewhere else in the country because they cannot afford to stay home. Because cost of homeownership and rental homes are so expensive the people who work in our local businesses that support our recreational area may have to leave for a place more affordable .