• Gary Sandler
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    Published 29 September 2017

    LAS CRUCES – First-time buyers drive the housing market. Think of it as the trickle-up theory. First-timers buy the homes of the first-time buyers who preceded them, who in turn move up to larger and more expensive homes.

    In annual surveys dating back to 1981, the National Association of Realtors reported that an average of 40 percent of home purchases over the past 36-years were made by first-time buyers. In this year’s survey of 5,465 buyers, who purchased between June 2015 and June 2016, “First-time buyers made up 35 percent of all home buyers, an increase over last year’s near all-time low of 32 percent.” The lowest share on record was 30 percent in 1987.

    The New Mexico Mortgage Finance Authority was created in 1975 to help more first-time buyers achieve homeownership. In October of 2015, MFA expanded its programs to also serve move-up buyers. During 2016, MFA made $316 million in loans to 2,291 homebuyers and provided $12 million in down payment assistance to 2,233 of those homebuyers. That’s nearly 2,300 sales, representing almost 12 percent, or one-in-eight, of the 19,933 home-sales that took place New Mexico last year, according to the Realtors Association of New Mexico.

    MFA assists first-time and move-up buyers by providing down payment and closing cost funds required to bridge the gap between the normal down payment and closing costs associated with Conventional, FHA, VA  and USDA loan programs, and MFA’s minimum cash investment requirement of $500. A first-time buyer is defined as a person who has not owned a home in which they have lived during the three years preceding the purchase. Move-up buyers are defined as buyers who currently own a home or have owned a home during the past three years. Here’s how the programs work.

    Let’s say a buyer purchases a $150,000 home using an FHA loan that requires a 3.5 percent down payment, plus closing costs of $3,000. Without down payment and closing cost assistance, the buyer would have to plunk down a total of $8,250 ($5,250 down + $3,000 in costs). With MFA assistance, the buyer’s total cash outlay can be as little as $500. For first-time buyers, MFA makes up the $7,750 difference in the form of a second mortgage that requires a monthly payment of $6 for each thousand dollars borrowed. In this example, the monthly payment on the second mortgage would add $46.50 to the borrower’s payment.

    For move-up buyers, MFA’s Next Home program replaces the second-mortgage with a grant equal to 3 percent of the buyer’s loan amount. The no-strings-attached grant does not have to be repaid. In our $150,000 scenario, a move-up buyer would receive a grant of $4,441, capping the buyer’s total cash outlay at $3,809.

    Lenders qualify borrowers using the normal guidelines associated with the conventional, FHA, USDA or VA loan chosen by the buyer. MFA then provides the additional funding. As I’ve mentioned many times before in this column, lenders are like shoe stores in that they are both retailers. As in most retail situations, not all lenders carry the same loan “products” and not all shoe stores carry the same shoe “products.” This is especially true when MFA is involved.

    While MFA requires buyers to have a minimum credit score of 620 to qualify for the programs, some lenders impose a 640 minimum. This could create a scenario in which a buyer with a 630 score would qualify at lender A’s 620 minimum but would be ineligible under lender B’s 640 minimum. That’s one reason that it pays to shop around.

    Some lenders that are eligible to tap into MFA’s assistance programs do not choose to carry the full lineup of MFA products. It’s important that first-time buyers work with a lender that’s ready, willing and able to utilize whichever MFA program (or combination of programs) is best for their situation; it’s not a “one size fits all” proposition.

    Having enough steady income to cover the loan payment and other household costs is one of the basic tenets of qualifying for a mortgage. Wages, salaries, tips, commissions, social security and disability income may, in certain circumstances, all count towards qualifying; as could child support, annuities, alimony and structured payouts. The lender must also follow specific guidelines in determining whether the total household income is within MFA’s program allowances.

    Income limits and maximum home prices for the First Home/First Down programs are dependent upon in which county the property is located. For first-timers purchasing in Doña Ana County, the maximum purchase price is $253,809. The maximum gross income for borrowers consisting of 1 to 2 family members is $58,996 annually. Families of three, or more, can make up to $67,845 before taxes. The income limit for the Next Home program for move up buyers is $90,000, irrespective of family size. The maximum purchase is $340,000. A first-time buyer has the option of using either the First Home or Next Home program.

    MFA’s First Home program benefits are significantly enhanced for borrowers who purchase a property located in a targeted census tract. A targeted census tract has been identified as an area of chronic economic distress. “A targeted area is identified as having at least 70 percent of the residents earning no more than 80 percent of the area median income”, said Teri Baca, homeownership representative for MFA. Baca goes on to say that “Doña Ana County contains seven such designated tracts, three of which are in Las Cruces.”

    Among the benefits for a borrower purchasing in a targeted area is that even a non-first time buyer is allowed to use MFA’s First Home/First Down programs. Additionally, allowable income limits on the First Home program are increased to $67,680 for a one to two person household and $78,960 for a family of three or more. MFA also allows for a higher purchase price of $310,211. Perhaps the most attractive benefit is the fact that the borrower will be quoted the lowest interest rate MFA has offered in the preceding 12 months. That rate today would be 3.625 percent.

    Well, there you have it. First-time and move-up buyers with $500 in cash, a 620 credit score and steady income may indeed be able to purchase a home today. For more information on down payments, targeted areas, and a list of eligible Las Cruces area MFA approved lenders, log on to www.housingnm.org.

    See you at closing.

    Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He can be reached at 575-642-2292 or Gary@GarySandler.com

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      Gary Sandler