Help for First-Time Buyers

/Home/3. Banking/Mortgage Advice

Help for First-Time Buyers
By Bob Tedeschi
Published: March 3, 2010

LOOKING for a fixed-rate mortgage with a competitively low interest rate, but armed with only 3 percent for a down payment, a low credit score and a modest annual income?

Thanks to an infusion of federal support late last year through the economic stimulus package, the State of New York Mortgage Agency, or Sonyma, is now offering 30-year affordable-housing loans at 4.75 percent, down from an average rate of 5.25 to 5.75 percent last year and well below the 5 percent or so being offered by mainstream lenders to their best customers.

The program is for first-time buyers, though buyers who have not owned a home in the last three years would also qualify.

Connecticut, too, has dropped its rates on a similar mortgage program for first-time buyers, while New Jersey plans to lower its rates this spring.

George Leocata, a senior vice president at Sonyma, says demand for the Low Interest Rate Program has been the highest in 12 years, which is hardly surprising given the difficulty in qualifying for conventional loans in recent months.

In sharp contrast to all the mortgages out there with stiff underwriting guidelines, New York’s Low Interest Rate mortgages have no minimum credit score. Borrowers can also qualify for a Sonyma mortgage if their total monthly debt payments reach 45 percent of their monthly income — and sometimes more. That’s about 5 percent higher than the amount allowed by conventional lenders, and higher than the threshold recommended by many financial counselors.

Still, Mr. Leocata maintains that borrowers default on these loans less frequently than those with conventional mortgages. Borrowers must pay monthly mortgage insurance premiums. For a 3 percent down payment, the monthly premium is 0.8 percent of the loan amount; for 5 percent, it’s 0.67 percent; and for 10 percent, 0.42 percent.

Borrowers must also fall within the household income limits — $107,520 in Manhattan, $142,520 in Long Island and $146,420 in Westchester — and the purchase price cannot exceed $637,640.

Few brokers offer the mortgages, because lenders must split New York’s commission payment with brokers, so interested borrowers should contact lenders directly. The major banks and many regional banks participate in the program.

Mr. Leocata says mortgage rates in this program will most likely rise, if interest rates on conventional mortgages rise (as is widely expected). But he also says the program’s rates will probably remain about half a percentage point lower than the rest of the market.

Meanwhile, Jerry Keelen, the director of single-family programs at the New Jersey Housing and Mortgage Finance Agency, said that in early April the state would probably begin offering mortgages for first-time buyers in the range of 5 percent, versus the program’s current rates of 5.75 percent.

Most loans in the program with down payments of less than 20 percent are insured by the Federal Housing Administration, and as such, are subject to F.H.A.’s mortgage insurance premiums. Income limits and home-price limits apply. Most borrowers, Mr. Keelen said, also qualify for an average of $7,500 in down payment and closing cost assistance.

The first-time homebuyer program in Connecticut has the lowest rates, at 4.375 percent.

Carol DeRosa, the administrator of residential mortgage programs at Connecticut’s Housing Finance Authority, said that as with the affordable-housing programs of other states, borrowers need not be first-time buyers if the home they want to buy is in federally targeted urban areas like Bridgeport, Stamford and Norwalk.

Even in areas where borrowers must meet the first-time-buyer qualifications, though, Ms. DeRosa says demand for these mortgages has been strong.

She said lower values were “creating good buying opportunities.”

Copyright 2010 The New York Times Company