From First Tuesday 11/17/15
First-time homebuyers haven’t had much luck in recent decades. Born to disproportionately successful Baby Boomers and entering the job market in a severe economic recession, members of Generation Y (Gen Y), a significant component of the first-time buyer population, struggle with low wages and high debts. These compounding obstacles are delaying Gen Y’s entrance into homeownership.
The California Housing Finance Agency (CalHFA), a small state-operated adjustable rate mortgage (ARM) originator funded by the sale of tax-free bonds, hopes to alleviate part of this struggle with a program called MyHome.
MyHome gives first-time homebuyers assistance to make a down payment that currently may be otherwise out of reach. This program is a variation on the colorfully named “SHAFT mortgage” popular in the ‘80s (more specifically called a “Share Home Appreciation by First Timers” mortgage).
With MyHome, up to 5% of the lower of the home purchase price or appraised value is lent to the buyer as a deferred-payment junior loan to cover the buyer’s down payment and closing costs on the purchase of their first home.
“Deferred payments” may sound particularly appealing to uninformed first–time buyers. However, they likely signify another incarnation of the once common “sleeper mortgage” – a mortgage which initially requires no monthly payments, then explodes into negative amortization and suddenly become due after compounding on a monthly basis unbeknownst to the buyer.
Eligibility for MyHome
First-time buyers seeking help from the MyHome program need to meet eligibility requirements. Buyers need to:
- be first-time homebuyers;
- occupy the home they intend to purchase; and
- be within the MyHome income limits for their county.
The program defines first-time homebuyers as those who have not owned and occupied a home in the prior three years.
Buyers also need to ensure the property they wish to purchase is:
- within the county’s MyHome sales price limits;
- on a lot no greater than five acres; and be either
- a one-unit, single family residence (SFR);
- manufactured housing on a permanent foundation funded with a Federal Housing Administration (FHA)-insured first mortgage; or
- an approved condominium subdivision or a planned unit development (PUD).
Buyers are required to complete homebuyer education counseling and meet with a preferred loan officer specially trained in CalHFA programs in order to apply for MyHome assistance.
Too little too late for first-time homebuyers
The broken record keeps scratching away at the same old song: first-time homebuyers are scarce.
Assistance government programs of this nature are merely chatter until the economy enables first-time buyers to earn high enough wages to develop personal savings sufficient to fund their own down payment. Until this occurs, first-time buyers are unlikely to become homeowners. Combined student debt and an inability to save for the historical 20% down payment greatly limits the size of mortgage first-time homebuyers are able to obtain. This is especially prohibitive when the cost of mortgage insurance equaling nearly 1% in addition to interest paid on a first mortgage is added.
Many first-time buyers are wary of the prospect of ownership. Most profess they do not want to incur more debt than they already owe — particularly if the interest rate can suddenly adjust upward. Thus, the prospect of MyHome’s disguised ARM is less than motivating to cautious homebuyers.
California’s homeownership rate hasn’t changed significantly since the conclusion of the Millennium Boom in 2008. It holds steady at 54.4% as of Q2 of 2015, the second-lowest homeownership rate in the country, preceded only by New York. Most first-time buyers are in no current position to change this. Thus, California’s static homeownership levels aren’t going to rise any time soon. Even the advent of mortgage assistance programs like MyHome is of no fundamental financial help.
Home prices are also not expected to decrease until mid-2017, remaining out of reach to many first-timers with minimal savings. However, despite the many obstacles aligned against them, first-time homebuyers remain optimistic about buying a home. For those lucky few who have been able to save their modest wages and are ready to graduate into ownership, programs like MyHome grease the gears for ownership of a home.
Source: “CalHFA launches assistance program for first-time homebuyers,” from The Sacramento Bee