In high-cost housing markets like Boston’s, gathering the funds for a down payment can seem like an insurmountable obstacle to homeownership. The average down payment for first-time home buyers was 6 percent in 2019, according to the National Association of Realtors, but saving for one can be a challenge when you have high rent payments and other obligations such as student loans. A variety of buyer-assistance and loan programs are available to clear the path to homeownership in Massachusetts.
“About 1 or 2 percent of our borrowers take advantage of government home buyer-assistance programs, but in the last year or so that number has climbed because of the consistent availability of funds through MassHousing,’’ said Shant Banosian, branch manager of Guaranteed Rate in Waltham. “We see a lot of first-time buyers with good credit and good income in Boston who haven’t been able to save enough for a down payment.’’
Many programs require borrowers to be first-time home buyers, and they are often limited by household income and the purchase price, said Sofia Travayiakis, branch manager of Mortgage Network in West Roxbury.
“There are city and local programs and some designed for people in the military, firefighters, and … law enforcement,’’ said Travayiakis. “Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible program help people get into homes with a low down payment.’’
The best way to find out about these programs is to meet with a loan officer and discuss all your options, said Travayiakis.
You can also check for programs on DownPaymentResource.com, which allows you to search by location and eligibility.
The Massachusetts Housing Finance Agency (MassHousing), a nonprofit quasi-state organization, works with an approved group of lenders to provide financing.
“We’ve been around for 50 years and fund, insure, and service loans, so that we understand the risks of loans at every level,’’ said Mounzer Aylouche, vice president of homeownership programs for MassHousing in Boston. “We support responsible lending, and we provide mortgage insurance at a low cost.’’
An important feature of MassHousing’s mortgage insurance policy is that it includes six months of principal and interest payment protection if the borrower becomes unemployed. That program is capped at $2,000 per month and a maximum total payment of $12,000. The borrower must file for unemployment with the state, and the protection must be used within the first 10 years of the loan. It is pro-rated, so if a borrower on the loan loses his or her job, then the payment would reflect the percentage of income that borrower contributes to the household, Aylouche said.
“This could be a very important feature at a time when we’re facing potential higher unemployment because of the economic shutdown due to coronavirus,’’ he said.
The MassHousing mortgage program is available to all borrowers up to 135 percent of the area’s median income. In Suffolk County, for example, the income of the borrowers listed on the loan can be no higher than $147,420.
The program offers a 30-year fixed-rate loan with a 3 percent down payment. Down payment assistance comes in the form of a second loan, a 15-year one available for 3 percent to 5 percent of the home price up to a maximum of $15,000. Borrowers typically need a maximum debt-to-income ratio (which compares your monthly gross income with your minimum payment on all debt) of 45 percent and a “decent’’ FICO score to qualify, which is 660 to 680, Aylouche said. First-time buyers must also take a home buyer education class.
Other MassHousing programs include Operation Welcome Home for veterans and active service members, a Mortgage with Renovation program for fixer-uppers, and a Workforce Advantage program for lower-income buyers in Boston and the “gateway cities“: Attleboro, Barnstable, Brockton, Chelsea, Chicopee, Everett, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, Lynn, Malden, Methuen, New Bedford, Peabody, Pittsfield, Quincy, Revere, Salem, Springfield, Taunton, Westfield, and Worcester. Workforce Advantage has a built-in down payment-assistance program.
One Mortgage, a statewide program from the Massachusetts Housing Partnership, is a 30-year fixed-rate loan with a discounted interest rate and a down payment requirement of just 3 percent. The borrowers’ total household income cannot exceed 100 percent of the area median income. In Suffolk County the range is $79,310 for a one-person household up to $149,556 for an eight-person one. Borrowers must have a credit score of at least 640 and take a home buyer education class.
Private mortgage insurance (PMI) is required with MassHousing loans, FHA loans, and loans purchased by Fannie Mae and Freddie Mac when borrowers make a down payment of less than 20 percent. PMI rates are typically low on most loans, said Banosian, although they are higher for FHA ones. Borrowers can compare rates and fees with their lender.
“A lot of the borrowers I deal with are already paying a high rent, so they won’t have a big adjustment to a mortgage payment,’’ said Banosian. “Cash is their biggest hurdle. The homeownership classes and the qualifications required by these homeownership-assistance programs make sure people succeed and don’t get in over their heads.’’