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So, I was browsing newsday.com and came upon this great, new development that Bellone is pushing. Suffolk County is now offering down payment assistance to low income homebuyers so they can purchase a house. I'm sorry, but isn't this exactly what caused the housing collapse in the first place? Allowing buyers who can't afford to own, the opportunity to own? Seems like an excellent idea to me.
Here's a link to the guidelines and the application so you can read more:
Suffolk County will provide $14,000 per person to buy a home, as long as the home is valued under $330,000.00 and you fall under an income level, which for a couple would be $67,800.00 a year.
Nice to see the county putting my tax dollars to use to dole out benefits and entitlements to people that can't afford it.
If they want to do a program like that they really should be aiming it at those on the cusp but the other way.
Suffolk County could provide $14,000 per person to buy a home, as long as the home is valued under $330,000.00 and you fall between an income level which for a couple would be $80,000.00 and $90,000.00 a year.
I have a co-worker who is applying for this program, but she is looking for a co-op or condo for herself. She makes decent money but she does not have the money for the down payment. There are also rules for this program. (You had to take a HUD mortgage class, you have to live in the house for at least 5 years, you can't have a rental unit in the house). It's a first come first serve basis as well.
She does have some savings (plus she will be living rent free at a friends house for a few months), but not enough for a down payment or closing costs (which is also what this program can be used for apparently).
Of course there will be irresponsible people applying for this, but I'm sure there will be people who need that extra help to get them where they want to be.
I'm sorry, but isn't this exactly what caused the housing collapse in the first place?
Not really. The issue wasn't down payment assistance in principle. The issue was giving loans with PAYMENTS people couldn't afford (especially when the load readjusted)- to people who'd already proven they wouldn't make payments (bad credit) because the people making the loans were planning on repackaging and selling them on WS anyway, so they never worried about actually getting paid back. It was the repackaging of bad debt with good debt and leveraging it that sent prices skyrocketing and caused the collapse when the defaults came.
That said, you're right, the program above is set up badly because it seems to ONLY cater to people who will default based on the numbers.
Assume home of 330K, 14K down and the buyer covers their own closing costs.
Mortgage 1700
+ PMI, + Taxes, + Insurance = at least 2500.
If your salary was the MAX allowed by the program, that would put their Housing DTI for this loan at about 45% of their monthly gross salary. THAT'S the recipe for disaster... and the major flaw in the program. This, of course, isn't a problem if the people have a much larger down payment... but then why would they need this kind of assistance?
If the income max was 90K as previously suggested in an earlier post, then it would run about 33%, still high, but closer.
Now, if the situation called for salaries to 90K and MATCHING funds, up to 14K... that would bring the loan to say around 300K (assuming home of 330 and 28-30K down. Then the loan would go down a couple of hundred and hit 30% max DTI for housing. That's more of a sweet spot. And, you would ensure that the people benefiting would have some skin in the game.
It would at least be viable. But the 14K/330K/68K arrangement just does not add up.
Anyone who read the application happen t notice that the buyers can only purchase within the 'consortium of homes' and that Bellone's former fiefdom, the Town of Babylon, is not in this consortium? He is giving the greenlight to set up defaults, foreclosures, and potentially abandoned properties everywhere but in his backyard.
Not really. The issue wasn't down payment assistance in principle. The issue was giving loans with PAYMENTS people couldn't afford (especially when the load readjusted)- to people who'd already proven they wouldn't make payments (bad credit) because the people making the loans were planning on repackaging and selling them on WS anyway, so they never worried about actually getting paid back. It was the repackaging of bad debt with good debt and leveraging it that sent prices skyrocketing and caused the collapse when the defaults came.
That said, you're right, the program above is set up badly because it seems to ONLY cater to people who will default based on the numbers.
Assume home of 330K, 14K down and the buyer covers their own closing costs.
Mortgage 1700
+ PMI, + Taxes, + Insurance = at least 2500.
If your salary was the MAX allowed by the program, that would put their Housing DTI for this loan at about 45% of their monthly gross salary. THAT'S the recipe for disaster... and the major flaw in the program. This, of course, isn't a problem if the people have a much larger down payment... but then why would they need this kind of assistance?
If the income max was 90K as previously suggested in an earlier post, then it would run about 33%, still high, but closer.
Now, if the situation called for salaries to 90K and MATCHING funds, up to 14K... that would bring the loan to say around 300K (assuming home of 330 and 28-30K down. Then the loan would go down a couple of hundred and hit 30% max DTI for housing. That's more of a sweet spot. And, you would ensure that the people benefiting would have some skin in the game.
It would at least be viable. But the 14K/330K/68K arrangement just does not add up.
yeah, the rule of thumb used to be the mortgage plus taxes should not be higher than 1/3 of your take home pay. that works for people who want to purchase homes they can actually afford.
Of course, in a few years the rest of us will be paying for these wise decisions when these folks ask for "loan forgiveness" once more.
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