Published 24 January 2021
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 second 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 39 years were made by first-time buyers. According to NAR’s latest survey, first-time buyers were responsible for 31 percent of all home purchases nationwide in 2020.
The bottom line is that more first-time buyers are needed to fuel the housing market, especially here in New Mexico. The New Mexico Mortgage Finance Authority (MFA) was created in 1975 to do just that – create more first-time buyers. During 2019, MFA made $432.4 million in loans to 2,828 homebuyers and provided $18.3 million in down payment assistance to 2,783 homebuyers. That’s nearly 3,000 sales that probably wouldn’t have taken place without MFA’s assistance.
MFA assists first-time 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 $500.00. A first-time buyer is defined as a person who has not owned a home in which they have lived during the 3-years preceding the purchase. Here’s how it works:
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 $500.00. MFA makes up the $7,750 difference in the form of a 2nd mortgage that requires a monthly payment of $6.00 for each thousand dollars borrowed. In this example, the monthly payment on the 2nd mortgage would add $46.50 to each mortgage payment.
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. This is where the 620 credit score and steady income come into play.
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 it pays to shop around.
Some lenders that are eligible to tap into MFA’s assistance program 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 programs are dependent upon the county in which the property is located. The maximum purchase price in Dona Ana County is $294,601. Maximum gross income for borrowers consisting of 1 to 2 family members is $65,880 annually. Families of 3, or more, can make up to $76,850, before taxes.
MFA programs 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 wherein a majority of residents earn far below the Area Median Income. Currently, 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 they are not required to be a first-time buyer. Additionally, allowable income limits are increased to $74,280 for a 1-to-2-person household and $86,660 for a family of 3 or more. MFA also allows for a higher purchase price of $360,067. 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.
Well, there you have it. First-time 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, contact your favorite Realtor or lender, or 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 loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.