Re: Affordable coho options | <– Date –> <– Thread –> |
From: David L. Mandel (75407.2361compuserve.com) | |
Date: Sun, 17 Dec 1995 01:03:35 -0600 |
In reply to my brief description of the second mortgages made available to our low-income members by the local housing agency, Mac Thompson asked the following questions. I'm happy to provide answers. 1. Did the second mortgage plus the first mortgage equal the total price of the home, i.e., no downpayment? Or was there also a downpayment and if so, what percent of the price? Our loan arrangement required a down payment of at least 3 percent of value, and a few buyers paid that little. That means they had to qualify on the basis of their income for a conventional first mortgage of at least 48 percent of the value, since the maximum second mortgage was 49 percent of value. I've heard of lenders who say, anyway, that they'll lend with an even smaller down payment or even none, though if you're talking 100 percent from one lender, the effective interest may go up due to hefty mortgage insurance requirements. In the case of our low-income buyers, they were not required to have mortgage insurance, since the lender didn't count the second mortgages when calculating their loan-to-value ratios. Also, the same local housing agency cooperated in setting aside and holding mortgage credit certificates for all our buyers who were getting the second mortgages. These are a very valuable federal tax credit worth 20 percent of interest paid every year ... much better for small mortgages than the regular mortgage interest deduction (which still applies to the other 80 percent). All 11 of our buyers who got second mortgages and three others qualified for this program. By the way, we also got a very good mortgage deal for nine of the remaining 11 buyers. The California Housing Finance Agency offers bond-financed below-market mortgages through private lenders to first time buyers with incomes below a fairly generous ceiling -- and in a "target area" -- which our rather dilapidated neighborhood is, you don't even have to be a first time buyer. Our loans through this program were 5.75 percent at a time when the market rate was around 7.75%, though a mortgage insurance requirement raised the effective rate to about 6.25%. Unfortunately, availability of MCCs, bond-financed mortgages and other such programs for first-time, moderate-income buyers is limited and probably shrinking fast with Gingrich slashing and Clinton meeting him halfway, but inquire in your community. There may be some such things. 2. You mention that repayment of seconds "will involve a share of appreciation as well as principal". Does that mean that they're interest free? If the housing market stagnates and there's no appreciation by the time the units are resold or the loans come due, then yes, the loans will be interest free. 3. Were the homes initially sold at market value? And if so, why is a deed restriction necessary? ("the resale of the units in the meantime is restricted as to price and income of buyer") We were essentially our own developers, so our prices were determined solely by our costs of construction. We expected, therefore, to be selling below market value. Unfortunately, something funny happened along the way. Our costs went way up for reasons I won't describe here and the housing market was depressed. In the end, our costs exceeded appraised values by an average of around 5 percent. Fortunely, the same local housing agency came to our rescue (a fringe benefit of the good relationship we developed) and offered a whole separate set of loans to all buyers to make up most of the gap. These are unsecured (otherwise the regular financing wouldn't have worked), low interest and payable upon resale -- but forgivable in whole or part if there is still insufficient value to assure that the seller recoups her/his initial investment. To get back to your main question here, however: the resale restrictions on units bought with the second mortgages are meant to keep these units affordable at least for a while and to prevent the initial buyer from making a big windfall if values go way up. It's the price they pay for the favorable loan they're getting and it serves a social purpose that we all favored. Admittedly it's a pretty small measure, since it expires after 10 or 30 years. Perhaps some others among us can find a way to make this affordability permanent in some or all units. And someday, we'll get speculative profit out of the housing market altogether (see my harangue against capitalism, also posted today). All the best; I hope this helps. David Mandel, Southside Park, Sacramento
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Affordable Coho Options Rob Sandelin (Exchange), December 11 1995
- Re: affordable coho options David L. Mandel, December 13 1995
- Re: affordable coho options Mac Thomson, December 16 1995
- Re: Affordable coho options David L. Mandel, December 16 1995
- Re: affordable coho options David G Adams, December 17 1995
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