It's a good sign when the presidential candidates start talking about the problems young people have buying homes.
Even if none of their proposals ever gets off the ground, they wouldn't be discussing the issue if they didn't realize how many potential voters are upset about it. High-level attention makes it more likely some attempt at resolving the problems will be made sooner rather than later.Democrat Michael Dukakis recently offered a specific plan to help first-time home buyers. Republican George Bush has nothing comparable, but he has proposed a general savings plan with a small tax break as an incentive.
Under the Dukakis plan, first-time home buyers would be allowed to use up to $10,000 from an Individual Retirement Account or a 401(k) for a down payment on a house - without incurring the usual tax penalty for withdrawing the money early.
Dukakis also would ask Congress to liberalize Federal Housing Administration loan guarantees. He would reduce the down payment required to just 3 percent of the loan amount and remove the ceiling on the amount of money FHA will insure. In addition, he would give FHA more leeway in deciding who qualifies for a loan and allow it to back more types of adjustable rate mortgages.
Who would be helped by these proposals?
- Young people who have substantial money saved in IRAs. Overall, Americans had $333.8 billion invested in IRAs at the end of last year, according to the Investment Company Institute.
- Families with incomes in the $30,000-$40,000 range who have enough income to meet a monthly mortgage, but can't accumulate enough for a substantial down payment, plus closing costs.
- People who live in metropolitan areas with high housing costs, such as San Francisco, Boston and New York. If the ceiling on FHA-insured loans were removed, more home buyers in expensive cities could use the program.
"They're all good ideas," said economist Michael Carliner of the National Association of Home Builders. But, he added, "They're not going to make a dramatic change. It's going to help those people who just kind of need a little boost."
Warren Lasko, executive vice president of the Mortgage Bankers Association, agrees and predicts that Congress will approve the FHA ideas. "I don't think anybody would vote against the FHA proposals," he said. "They don't cost anything."
Currently, FHA guarantees loans up to 95 percent of the median price in an area, but only up to a ceiling of $67,000 in most places and to $101,250 in high-cost cities.
Dukakis would eliminate that ceiling altogether. So, if you lived in San Francisco, where the median home price is about $196,000, FHA would be able to insure a mortgage up to $186,200. In Providence, R.I., where the median is $131,000, the mortgage could be as much as $124,000.
Even with low down payments and big mortgages, many families still couldn't afford the high-priced houses in major cities. After all, a $120,000 mortgage at 10 percent for 30 years would require monthly mortgage payments of just over $1,000.
But that's not beyond the reach of a family earning $45,000 a year, or even $40,000 in some cases.