By Victor Normand
Published: September 2010
You may not have heard, but it is still possible to get a nearly no down payment mortgage in Massachusetts. Despite the headlines and all the talk of how difficult it is to get a mortgage, MassHousing, with the support of Fannie Mae, has a product that will get some borrowers into a home for not more than $1,000; and there are grants to help bring that cost down as well. While little or no down payments are cited as a contributing factor that set in motion the critical housing problems we have today, in fairness other factors were as much to blame, such as ill-advised use of adjustable rate mortgages and lax underwriting standards.
Renting vs. Buying a Home: Weighing the Costs
Still, one has to wonder if a program that makes it financially less painful to buy a home than to rent one is such a good idea. In Acton, the average rent for all properties listed for rent during the past year was over $1,400 a month, with landlords typically asking for first and last month’s rent, and a month’s rent for a security deposit up front before turning over the keys. That’s $4,200 as a “down payment” to rent. It seems that if a renter can come up with that kind of money to close their deal, buyers should be asked to do as much.
No one wants to be discouraging buyers these days, especially those of us who depend on them for our livelihood, but a stable housing market should be everyone’s goal. Nothing helps ensure commitment to a property or a neighborhood like an investment of one’s hard earned cash. Asking buyers, especially first-time buyers, to come up with a down payment of 20% is often a tall order, but 3% to 5% may not be too much to ask.
When you consider all of the expenses, it does cost more to own a home than to rent one, even for most starter homes or condominiums. Figuring out what that incremental cost increase will be is not hard to do. Getting prospective buyers to save that increment every month is a good way to start building a real down payment while at the same time adjusting to a new housing expense budget. Let’s be cautious as we return to a normal market; we could all do with a bit of calm and predictability.