Nonprofits and Real Estate

MSHDA survey reveals first-time homebuyer fears

Report shows prospective buyers worry about down payment readiness, loan eligibility, long-term affordability.

July 14, 2017
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ICCF
ICCF offers a class for potential first-time homebuyers that covers readiness, credit, budgeting and the purchase and closing process. Courtesy ICCF

Many who watched loved ones lose homes during the Great Recession thought they would never risk buying their own house.

But a recent survey by the Michigan State Housing Development Authority shows first-time homebuyers represent a significant piece of the overall housing market for 2017.

“All of us remember the crash in 2008, and it created a lot of fear,” said Mary Townley, director of homeownership at MSHDA. “Many of our first-time homebuyers had family or friends who lost homes. It added to their concern about whether this is the right time, the right move to make and whether their income is stable enough.”

The survey polled 500 current Michigan residents with annual household incomes between $50,000 and $125,000. Forty-five percent of respondents said they are considering buying a home in the next 12 months; of those, 26 percent will be first-time buyers.

The top reasons respondents cited for wanting to purchase a home are the desire to own their own place (83 percent) and being tired of paying rent (44 percent).

Rising rent prices play an especially significant role in West Michigan, said Ryan VerWys, CEO of Grand Rapids affordable housing nonprofit Inner City Christian Federation, which partners with MSHDA on homebuyer education.

“One thing we saw in the survey results is people are tired of paying rent,” he said. “More often, the case is people can’t afford their rent. Rents in this area are higher than what a mortgage can be.

“What we’re seeing is more and more people’s rents are moving up so rapidly, they’re recognizing paying a mortgage would be more affordable.”

But acknowledging a cost differential is just the first step — and that’s where first-time buyers start to worry.

“Many of them don’t have a lot of cash assets to put down on the property, and many of them scramble around to find resources,” Townley said. “They know their rent is high, but they don’t know where to go next.”

Among survey respondents who want to purchase their first home in the next 12 months, lack of savings for a down payment was the top concern (55 percent).

The worries don’t stop there. While housing prices and available listings are among the main concerns for all homebuyers, the survey showed several areas where first-timers express a higher percentage of uncertainty than repeat buyers:

  • Not being confident their mortgage would be approved (32 percent)
  • Difficulty finding credible information and advice on housing and financing (22 percent)
  • Lack of knowledge to make a good decision (21 percent)
  • Unsure of ability to make mortgage payments (18 percent)

Townley said MSHDA refers potential buyers to ICCF — and other area education partners, such as MSU Extension-Kent and New Development Corp. — to allay these worries with facts.

Elzie Honicutt, housing programs manager at ICCF, said his organization offers a variety of classes and workshops.

“We offer Introduction to Homeownership, a two-session course, specifically talking about homeownership readiness, credit and budgeting, choosing the right home, fair housing, purchase and closing processes and more,” he said.

“We also provide a Home Maintenance Workshop series in partnership with Home Repair Services.”

VerWys said in addition to the intro course and the series on post-purchase care, ICCF teaches details of financial management in a five-session series.

“We provide a Financial Capabilities class that gives the basics of financial management, spending plans, the basics of banking, fair housing and lending, how credit works and helping people think about debt reduction and saving.”

For those who walk away from the intro course with more questions about buying a home, ICCF provides one-on-one counseling.

“The homeownership counseling team will sit down with a family to determine eligibility and where they are at in the process,” Honicutt said. “When we talk to families, we try to encourage them that once they’re organized, they will be able to save, and once they save, they’ll be able to qualify for our program.”

VerWys said counseling won’t always guarantee readiness or immediate eligibility.

“Not everybody who comes through the program is going to go into homeownership,” he said.

“I was talking to a family the other day I ran into at my son’s Little League game that had been through the program two years ago and were not ready for a home purchase at that time. Specifically, they needed to repair their credit. Now they are ready, two years later. They have not found a house yet but are working toward it.”

For those who qualify, ICCF offers a 3-to-1 cost match program called an Individual Development Account. Once a participant earns $1,000 toward the cost of a home, ICCF matches it with $3,000.

Townley said MSHDA also offers down payment assistance up to $7,500 “for those that are truly in need” who don’t have more than $10,000 in liquid assets. The DPA opportunity is part of its MI Home Loan program for first-time homebuyers statewide.

“Our job is to help empower these first-time homebuyers to become confident, smart buyers and realize the dream of homeownership,” Townley said.

Honicutt said he believes some first-time homebuyers lack confidence because they haven’t been part of a family history of homeownership.

“Unless you’re in a household where you have generational wealth … the housing market has patterns of disparity and racism that create challenges for people who didn’t have necessarily the privilege of witnessing how homeownership works over the years,” he said.

“So there’s a real need for programs that help people gain this knowledge.”

He said the MSHDA survey is “very telling” about post-recession market conditions.

“There are strong concerns about housing moving forward. There is a push toward the stability of homeownership, and this education does provide that (confidence).”

Prospective homebuyers can visit MichDownPayment.com and ICCF.org to learn more about the various first-time homebuyer assistance programs available and find out if they are eligible.

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