Why Affordable Housing Is So Critical In 2021

Dated: February 5 2021

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Our country is experiencing a historically low inventory of housing for sale.  Yet interest rates are lower than ever.  As the rule of supply and demand takes effect, home prices are rising.  What is the effect on those homebuyers who want to own the roof over their heads?

house floating away

As values increase, so does the required down payment on a home purchase.  The old saying, cash is king, holds true for real estate as well.  If an FHA loan requires a downpayment of 3.5 percent on a $250,000 purchase price that comes to $8,750 for just the down payment.  Wait...there are also settlement cost expenses on top of the down payment.  An estimate in Frederick County, Maryland would be roughly 4 percent of the sales price to cover just settlement costs.  Settlement costs include lender fees, like points, prepayment of property taxes, prepayment of homeowner’s insurance, the survey, title insurance plus local and state taxes.  On a $250,000 sale, the borrower would need to have roughly $18,750 in cash to be able to purchase the home. 

Let’s say the same home goes up in value to $275,000.  This is very common in a seller’s market due to multiple offers and steep competition, especially in lower-priced properties.  The downpayment and closing expenses also go up.  So the cash the buyer would need to go to settlement would be roughly $20,625.  That’s an additional $1,875 the borrower must save in order to be a homeowner.  

Interest rates do help bridge the gap between the haves and have nots.  The actual mortgage amount only went up approximately $105 factoring in an interest rate of 3 percent. Many first time homebuyers can absorb an extra $105 a month in their budget.  However, coming up with an additional $1,875 for their settlement is painful.

The concern is that the market is pushing first-time homebuyers and lower-income families back to renting.  Affordable housing, supported by safe lending programs that offer grant funding, is more critical than ever! Local governments must work harder to provide opportunities via moderately priced housing units that help lower-income families actually own the roof over their heads.

The ability to call a property your home builds family stability, generational wealth and helps our communities share a common vision of inclusion.  As a Realtor, and owner of a top real estate company in Frederick Maryland, I am proud to support the Frederick County Association of Realtors’ efforts to support Affordable Housing legislation and policies in the communities where we live and serve.

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Terry La Scola

Terry La Scola is a lifelong resident of Frederick County Maryland and has been involved in the business community of Frederick since 1979. As an entrepreneur, Terry has an extensive knowledge of sal....

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