Affordable homeownership: beyond the closing table
Much of the country is facing some sort of affordable housing crisis. Efforts are being made to prevent displacement from gentrification, address substandard and unsafe housing and increase the number of affordable rentals. There are also many programs to help low-income families become homeowners. This is very important because ownership not only helps a family become more housing secure and less likely to be displaced, but if managed properly AND the real estate market is stable, asset wealth can be available for future generations.
Helping first-time buyers prepare to buy is bigger than getting financially ready though. It is important to help families develop and maintain solid money management skills, including budget development and maintenance, being aware of spending habits and developing, maintaining AND understanding good credit and having solid, consistent savings habits. It's even more important when we are talking about low-income first time homebuyers who may be coming from generational poverty. A lot of individuals who are seeking information about homeownership haven't had people in their immediate circle who can provide first-hand knowledge and advice pertaining to purchasing and maintaining a home.
That's one reason why it's equally important to help these same prospective buyers get mentally ready for this significant responsibility. Transitioning from renting to homeownership can be challenging in many ways but from my experience, changing mindset is the biggest challenge. Most first-time homebuyer education and counseling is focused on getting someone ready for mortgage qualification. The focus is on getting to the right credit score, saving for the down payment and closing costs, and managing debt ratios. These are all very important but is work being done to prepare families who have varying exposures to poverty which undoubtedly comes with a certain amount of poverty trauma that dictates financial decision making? Many families work diligently to achieve all of the benchmarks necessary for mortgage pre-qualification. Credit score - check. Savings goal - check. Debt paid down or off- check. The entire transaction in a whirlwind, from getting approved for a mortgage, selecting an agent, finding the right property, inspections to closing the deal. And when the last signature is collected, the final check is cut and the keys are in hand, the buyer finds themselves all alone.
Throughout the entire process buyers are told that they are doing the best thing for themselves and their family by purchasing a home. How many times have you heard someone say, "For what you're paying in rent, you could pay a mortgage"? I've heard it many times and as a homeownership program developer and facilitator, I have said it many times. It's true. IF the market conditions allow it. There are many neighborhoods in Pittsburgh, where a family earning 80% AMI (Family of 4 can earn up to $63,900 *2019) can qualify for 2nd deferred mortgage programs, down-payment and closing cost assistance programs and other programs that incentivize affordable homeownership in low to moderate income communities. This is a good thing however what is not being considered in a lot of cases is the fact that affordability really only impacts the principal and interest in the mortgage, it doesn't factor in the rising taxes on properties located in neighborhoods where market values are increasing rapidly. So, if the principal and interest is able to be reduced because the amount of the mortgage is being reduced by the 2nd deferred program but tax abatements or some other legislation isn't being offered as well, is it truly affordable? I am seeing families being kept out of homeownership, not because the mortgage is too high but because the taxes are unaffordable.
We consistently see the statistics that show that owning a home increases the chances of building wealth and escaping poverty. That wealth from homeownership only happens if you can benefit from home equity that is for the most part, is created by market value over time. If families are not able to buy in neighborhoods that have projected market growth because they can't sustain the increase in property taxes, are we setting them up for failure? I would say yes, unless we are having the conversations and coming up with solutions to correct this.