There is a large pool of renters that can handle a monthly mortgage payment but can’t afford to buy a house.
That’s because the majority of people are living in a paycheck to paycheck — or just a little bit better — world. It means they don’t have the money saved for a down payment although they more than likely can shift month-to-month living costs by cutting out little luxuries such as reducing the number of dine-out meals if they have to spend a little more on monthly housing costs.
So how are people who fall into that category managing to buy homes? If they qualify for an FHA loan that requires a 3.5 percent down payment many are doing so with help from relatives.
In the 12-month period ending in September, some 26 percent of all FHA loans involved buyers that got help from family `members with the down payment. That’s up from 22 percent in 2011.The odds are that while that is still happening in Manteca, Lathrop and perhaps even Ripon it is more likely to occur in Modesto, Stockton, and Turlock as well as most non-coastal states due to the higher cost of housing
On a $300,000 home in the Manteca market, a 3.5 percent down payment translates into $10,500. You will find only one home listed in Manteca for $300,000 and it is a two bedroom, one bathroom with around 900 square feet. A FHA loan with 3.5 percent down with PMI insurance, homeowners insurance, and taxes will cost $1,902 a month.
Given that is just $100 more a month than the average house rents for in Manteca, it is do-able. Of course to get more bedrooms and such a first-time buyer that resides in Manteca is more likely to find what the need and can afford in Salida, Stockton, or Modesto. If they ultimately want to own in Manteca they will have to build equity to work their way back.
The more down, however, the more home a buyer is likely to afford. There are a number of homes for sale for $390,000 or less in Manteca that come under the FHA loan cap for the region. By having $13,500 for the 3.5 percent down payment, the monthly housing payment covering all of the basics is $2,473.
It is not unusual for a FHA buyer to take savings they have, help from a relative, and borrowing against a retirement account to cover a down payment.
That said you never know what can happen until you get the ball rolling and sit down with a loan officer for an au gratis heart-to-heart with all of your financials laid out in front of you. In our case, we were about $2,000 short back in 1994 when we bought a home. My brother was willing to gift us the shortfall after the loan officer determined how much home we could afford on our income and the monthly payment. We also took her advice after we laid out how we spent money and cutback on dining out and refrained from big credit card purchases that would impact our ability to secure a loan. Three months later we found the home we wanted and could afford plus had saved up more than to cover the $2,000 shortfall with no need to count on the generosity of a relative
No doubt the smartest thing we did besides deciding we’d be better off significantly in terms of finances in the long run by owning a house was to sit down face-to-face with a loan officer who gave us an honest assessment of our finances and spending habits and helped us devise a game plan to become homeowners.
To contact Dennis Wyatt, email dwyatt@mantecabulletin.com
