NEWS: Programs and tactics to help you afford to buy a home

Natalie Campisi

June 25, 2019

The homeownership supply and demand tug-of-war continues, deterring some homebuyers and prompting banks and public institutions to create special programs to give the demand side more juice.

Government-sponsored enterprise Freddie Mac, for example, just announced its “All for Home” program which offers targeted services for lenders, real estate agents and homebuyers that addresses down-payment assistancetechnology issues, outreach and education.

Meanwhile, the Mortgage Bankers Association (MBA), which represents more than 2,200 member companies in the real estate finance industry, launched a new affordable housing initiative to create partnerships in policy and the private sector to solve the affordable housing problem.

“The lack of affordable housing is presenting significant challenges to families across the country. We need to explore how the lending community can better partner with public, private, and non-profit stakeholders to ensure more Americans have access to homes they can afford,” said Robert D. Broeksmit, MBA president, in a statement.

In the meantime, homebuyers shouldn’t necessarily wait for a perfect market, says Diane Hughes, senior vice president at UMB Bank. There are several components that make up a housing market — from interest rates to supply — so expecting every moving part to line up in the buyer’s favor is impractical.

Here are a few ways buyers can crack the homebuying code without waiting for a sea change in the market.

Expand your homebuying search

The old maxim in real estate is “location, location, location” — but what if that location comes with enormous costs? If you can afford to be flexible in your search, then looking outside of your chosen location could save you money, says Paul Akinmade, CMO at HomeFundIt.

“A home just over a certain county line could dramatically reduce the cost of property taxes and put you in a better position to buy,” he says.

For example, the difference in median home prices in Middlesex County, New Jersey and Richmond County, New York is $170,072, according to data from the National Association of Realtors, or NAR.

The monthly payment on a median-priced home, $530,000, in Richmond County, with a 4.5 percent interest rate on a 30-year mortgage is $2,685 per month. On the other hand, the same mortgage terms and interest rate on a median-priced home, $360,000, in Middlesex County is $1,824 per month.

The distance between those counties is roughly 20 miles. When you consider the price difference, someone who can’t afford in Richmond County might be able to drive 40 minutes to Middlesex County and find a house within their budget.

“This broader view can be advantageous – for example, the buyer may be able to get more for their money in the way of a bigger home and more amenities than they were originally seeking,” Hughes says.

Consider a rent-to-own deal

Rent-to-own home agreements are not common, but they do happen, particularly if sellers are having a tough time offloading their home, says Kim Burchett, an agent at Sold by the Sea Realty in Wilmington, North Carolina.

Rent-to-own, or lease-option, agreements give buyers the right to buy the home before the lease expires. This can be helpful for buyers who are not financially ready to buy a home, but want to pin down a house (and its sale price) while improving their credit or saving up for a down payment.

For buyers, these agreements can be a good deal if they’re able to lock in the sales price so that it doesn’t change when it comes time to buy. This is great in today’s market where home values are steadily rising every year — the same wasn’t true 10 years ago when home values were falling. Buyers should ask that a portion of their rent goes toward the sale price, which allows them to build future equity while leasing the property.

“However, if the owner says they will have the home appraised later when you are ready to buy, you run the risk of a higher home price. While rent-to-own might work in some cases, it’s hard to make a generalization here,” Akinmade says.

Another advantage of lease-option contracts, Hughes cites, is being able to live in the home before you buy it, so you can see the pros and cons of the property and neighborhood firsthand.

However, there are nuances that buyers should watch out for before signing a contract. Lease-purchase agreements, for example, don’t give tenants a choice to buy at the end of their lease; instead they’re contractually obligated to purchase the property.

Another example of a rent-to-own contract buyers should think twice about is when renters-turned-buyers receive credit toward a down-payment only for the rent payment that is greater than current market rents, Hughes says.

Don’t be afraid to name your price

Before you pass up a house because it’s outside of your budget, consider negotiating. Buyers might be surprised at how willing sellers are to lower the sales price, says William Martin, associate real estate broker at Douglas Elliman Real Estate in New York. He says that in today’s market, with home-value increases slowing and less competition, buyers have more room to negotiate.

“I have had great success with negotiating on behalf of my buyers. In some cases, the results are astonishing. Don’t be afraid of rejection. If you don’t ask, you can’t accomplish the goal,” Martin says.

Hire a broker who knows the local market well and can work with you to present a strong offer. If you lowball the seller without good reasons, then your chances of getting a better deal are diminished. Details about how long the house has been on the market or whether it comes with the same amenities as other houses in the area might be strong cases for a price reduction.

Finally, there are programs for buyers who need down-payment assistance or help finding affordable housing. To qualify with many of these programs you only need not have owned a home for the previous three years.

“Many lenders will work with buyers experiencing circumstances like these and find mortgage loans that fit their specific situations,” Akinmade says.