Help for home buyers

Homes are expensive in parts of the Charleston area, but state-sponsored incentives can help first-time buyers.(Leroy Burnell/staff 3/31/06)

Housing affordability is a growing problem in parts of the greater Charleston area, but at the same time, there are some terrific financial resources that potential home buyers may not know about.

With interest rates still hovering around all-time lows, buying looks pretty good compared to renting, for those who don’t plan to relocate.

A today’s rates, the monthly payment on a $200,000 30-year mortgage loan is about $900, not counting insurance, property taxes, and private mortgage insurance if required. The median price of all 3-bedroom homes sold in the tri-county Charleston area in 2015 was $196,000.

If that mortgage payment sounds good, imagine getting a $2,000 back each year as a tax credit, or starting out with a low-interest, low-downpayment loan.

Home buyers with middle-class incomes might not think to look for incentives such as those from their state or local government, but that would be a mistake.

Two options that home buyers in South Carolina should be aware of come from the S.C. State Housing Finance Agency. The agency offers downpayment assistance and low-interest loans, or access to a valuable federal tax credit that benefits the home owner year after year.

There are income and home-price limits, but in every county, generous limits make these programs available to most people. For example, a family of three could earn up to $88,060 (well above average) in Berkeley or Dorchester counties, and buy a home costing up to $255,000, and still qualify.

The statewide programs have different rules for “targeted” and “non-targeted” counties. In non-targeted counties including Charleston, income and price limits are a bit lower and the incentives are limited to “first-time” home buyers. However, “first-time” really just means you haven’t owned a home in three years, and the restriction is waived for honorably discharged active-duty veterans.

In “targeted” counties including Berkeley and Dorchester, the incentives are available to any home buyer, so long as they don’t own another home at the time of purchase. In other words, you could sell a house, then buy one in Berkeley or Dorchester counties, and take advantage of these “first-time” buyer incentives.

The “mortgage credit certificate” is an incredibly valuable incentive. It’s a federal tax credit that essentially rebates 50 percent of the interest paid on a mortgage, up to $2,000, every year you own the home. But unlike most tax credits, you can only get this one if you arrange to do so before you complete the purchase of the home.

To do that, a buyer needs to work with a participating lender and pay $700 in processing fees.

Remember that a tax credit, which reduces your tax bill dollar-for-dollar, is far more valuable than a tax deduction, which reduces the income subject to tax. There’s a federal tax deduction for mortgage interest, for those who itemize deductions, but most moderate-income home buyers don’t benefit because their standard deduction is worth more.

The mortgage credit certificate can not be used along with state-offered downpayment assistance (below); it’s one or the other.

Note that if you sell the house after less than nine years, and your income has increased to the point where you would no longer qualify for an MCC, and you make a profit selling the house, you would have to give some money back to the government. That amount is the lower of half the capital gain (the profit) on the house sale or 6.25 percent of the original loan amount.

Buyers can get $5,000 in downpayment assistance, through the S.C. State Housing Finance Authority, or $7,000 if the home is new construction. The money is either a 10-year second mortgage at 2 percent interest, or a no-interest loan that’s forgiven after 10 years, depending on the buyer’s income.

30-year loans are offered with downpayments ranging from 3 to 5 percent of the purchase price, with a minimum credit score of 620 (or 680 for a conventional loan with 3 percent down).

Remember that making a low downpayment, plus a 30-year mortgage loan, means that you start out with little equity in the home and will build equity slowly in the early years of the mortgage loan. That poses some risk, because if housing prices drop again the home could become worth less than the amount owed on the loan. Equity is the difference between the value of the property and what’s owed.

For more details on these incentives visit www.schousing.com or call (803) 896-9001.

In program particular to the city of Charleston, there’s a first-time buyer initiative in which the city sells houses and condos at subsidized prices to first-time buyers who meet income guidelines. None of the more than 100 homes are currently available, having all been sold, but the city is building seven more this year.

Under the city’s program, when homes are re-sold they are again sold are discounted prices to qualified first-time buyers, allowing for limited capital gains for the seller. But it’s a great way to own a home on the peninsula, if you can get one of them.