Wednesday, March 19, 2014

South Carolina First Time Home Buyers

Most of the states offer first time homebuyer programs or assistance to various categories of buyers. If you think you might qualify for one of these programs, it is worth a visit to a website and a phone call or two to check out what is available. I am always on the lookout for free money. Unfortunately these programs are a moving target, subject to the winds of state politics and the hard realities of the marketplace. What is currently offered in my new home state of South Carolina is not all that great. Although I know that in the past it was a very good deal. I discussed the current situation with a representative of the program. There will be new offerings available to law enforcement officers, correctional officers, teachers, firefighters, veterans, and EMS personnel in late April, so if you fall into one of those categories, standby for something better.

In order to qualify for the basic South Carolina First Time Home Buyers Program you can not have owned a home anytime within the last three years unless you are a single parent, a veteran honorably discharged within the last 25 years, or 100% disabled.

The South Carolina First Time Home Buyers Program is completely self funded. They receive no taxpayer money from the state. They raise funds by selling bonds on the open market. Right now the open market is pretty hostile to first time home buyers programs. Currently they offer a rate of 5.00% on fixed thirty year mortgages. That is about 0.75% over the prevailing market rate of 4.29%. Normally their rates are 0.25% to 0.50% below market rates. They have a new bond issue pending. They expect to offer a much better rate sometime in the near future.

These loans are actually issued by one of the program’s approved lenders. They are FHA loans that only require a 3.5% down payment. Unfortunately all new FHA loans issued for more than 80% of the appraised value will require PMI for the entire term of the loan. This requirement and a higher that market rate means that I can not consider these FHA backed loans a very good product for the typical consumer.

Depending on the nature of the loan, minimum acceptable credit scores can range from a low of 580 for certain Government backed loans, to a score of 650 for conventional mortgages. Generally scores between 620 and 639 are considered risky. 760 to 850 are considered golden.

The South Carolina First Time Home Buyers Program requires a minimum score of 640. This program allows a debt to income ratio of up to 45%! I would be nervous with a debt to income ratio of 30%. I would be shivering in terror if that ratio went past 35%, but that’s just me.

So why do people who probably shouldn’t be buying a house line up to get loans that are currently not a very good deal. It’s the down payment. The new normal is 20% down. On a $200,000 home that is $40,000 cash in hand. With a 3.5% down payment that number drops to $7,000. As they say in the late night infomercials, “But wait! It gets better!” The South Carolina First Time Home Buyers Program offer $5,000 cash money that you can use for your down payment or closing costs. Depending on your income and the value of your home this $5,000 will either be a loan or an outright grant. This feature drops the effective down payment in this example to 1%.

The South Carolina First Time Home Buyers Program offers a very interesting optional extra for a one time fee of $700. This outstanding little benefit allows you to receive a tax credit of up to $2,000 a year on the first 30% of your total mortgage interest charges for that year. That is a tax credit, money 100% directly off the bottom line of your tax bill, not a tax deduction that will give you something like 25% off the bottom line depending on your tax bracket. “But wait! It gets even better,” you can still deduct the remaining 70% of your mortgage interest charges! The requirements for this particular aspect of the program are too complicated to be listed here, but if you qualify it is well worth your time to look into this offer.

“Take things as they are. Punch when you have to punch. Kick when you have to kick.”
Bruce Lee

Learn how to best manage your money in the world as it exists. Be wise. The banks, the states, the Federal Government, and the real estate industry all want you to buy a home for their own reasons and for their benefit—not yours. Depending on the times, your financial condition, and the offerings of a particular program, these special offers could be a once in a lifetime opportunity to live the American dream or a trap for the unwary.

Especially when buying a first home: “Let’s be careful out there.”

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