O Affordability, Affordability, wherefore art thou affordability?
Undeniably, first time home buyers in Ashland Oregon have a tough time of it when it comes to entering the Ashland Oregon real estate market for the first time. Other areas of Oregon are struggling with the same challenge of housing affordability versus the area median incomes.
(enter Oregon Bond stage left)
The Oregon Bond Loan was designed to assist first time home buyers earning 80-120% of median income. There are two programs under Oregon Bond Loan. RateAdvantage, currently at 4.95%, assists qualifying buyers by giving them an interest rate ¾ to 1% lower than the going market interest rate. CashAdvantage, currently at 5.45%, assists qualifying buyers by giving them an interest rate ¼ to ½% lower than the going market interest rate AND a cash credit to be applied toward down payment and closing costs of 3% of the loan amount.
(enter Mortgage Credit Certificate stage right)
The Mortgage Credit Certificate (MCC) provides financial assistance to first time home buyers by allowing qualified buyers to take a federal income tax credit of up to 20% of their annual mortgage interest payments. Using a comparable conforming 30 year fixed going market interest rate of 5.875%, for qualifying purposes a monthly tax credit amount would be deducted from the total monthly housing payment, presuming the buyer is paying federal income tax in excess of this annualized amount, and this annualized amount would be deducted as a dollar for dollar credit against their federal income tax owed. In addition, the remaining 80% of the mortgage interest and any other qualified deductions such as property taxes may be deducted under the buyer's itemized deductions.
The funding source for the Oregon Bond Loan and MCC participating cities/counties would usually be the same, so this would be an "either or choice". A buyer would not be able to use the Oregon Bond Loan AND a Mortgage Credit Certificate. So, let's compare the programs side-by-side in a theoretical maximum purchase price modeled after the Portland Development Commission's proposed MCC Program that they will be implementing March 2008, but based on 90% Ashland Oregon's current median sales price of $348,000 and Jackson County Oregon's median income. We'll figure 3% down payment on a purchase price of $310,000 on all three options, monthly mortgage insurance premiums, and maximum income allowed for Ashland, Oregon with no other monthly debt payments owed by borrowers. Seller is allowed to contribute up to 3% ($9,300) on all three programs toward buyer's closing costs.
(all characters on stage)
OregonBond CashAdvantage Interest Rate 5.45% (apr 6.118 %) Total Monthly PITIM Payment $2,118 Total Cash needed to close $11,500 |
OregonBond RateAdvantage Interest Rate 4.95% (apr 5.607%) Total Monthly PITIM Payment $2,025 Total Cash needed to close $20,500 |
Mortgage Credit Certificate Interest Rate 5.875% (apr 5.632*%) Total Monthly PITIM Payment $1,990 Total Cash needed to close $20,800 (*including 20% tax credit) |
(closing scene)
So what does this tell us? It tells us:
The lowest monthly cost will be derived from the Mortgage Credit Certificate program
The lowest cash out of pocket will be derived from the CashAdvantage program
The lowest long term cost will be derived from the RateAdvantage program
All three programs offer great benefits to qualified buyers. But, the verdict is in -
As long as the interest rate spreads remain equivalent to those used above, the Oregon Bond Loan is of greater benefit to the qualified first time home buyer in this price range at this income level than the Mortgage Credit Certificate program. For first time home buyers lacking the down payment, the CashAdvantage program is an incredible tool. If Oregon Bond increases their interest rates thereby decreasing the interest rate spread, the Mortgage Credit Certificate program would be of greater benefit.
Buying opportunities abound, Ashland Oregon first time home buyers! Now is a great time to buy!
See you at the closing table!
Karen Cooper - OR/CA Mortgage Consultant - http://www.quality4loans.com/
