When Councilman Paul R. Farragut, D-4th, first came to Columbia in 1969, he borrowed money from his father to pay settlement costs on a new home.
Farragut says he was fortunate that his father lent him the money to get into "the homeowner stream."
Once there, the average homeowner in an inflationary market usually doesn't worry about finding cash for down payment and settlement costs for the next house. The difference between what the owner paid and what the house sells for usually covers settlement costs on a second home. But entering the "stream" in the first place is the problem.
Concerned that many potential first-time homebuyers lack the cashfor settlement costs -- about 6 percent of the purchase price of a Howard County home -- and are unable to borrow from family members, Farragut wants county government to help.
He has written County Executive Charles I. Ecker asking that the county provide what Farragut calls an "expense settlement program." First-time homebuyers would borrow money from the county to pay settlement costs; the county would either defer the interest for several years or charge a minimal amount.
First-time buyers in Howard County often face housing prices which they can amortize and high closing costs, which they can't.
Statistics supplied by the Howard County Board of Realtors show the average March 1991 cost of a house in the county was $183,978. The average cost of a condominium apartment was $92,194 and the average rent was $859 a month.
Assuming a family spends 25 percent of its income on housing, the average renter would need an income of $41,232 just to pay the rent, to say nothing of utilities. The average home buyer, making a 20 percent down payment and carrying a 30-year mortgage, would need a $65,332 income to pay the mortgage, taxes and insurance.
The condominium buyer who made a 5 percent down payment on a 30-year, federally insured mortgage would need an income of $38,456 to obtain a loan. Additionally, he or she would have needed $10,142 in cash -- $4,610 for the down payment and $5,532 for the closing costs.
Farragut told Ecker he hoped legislation necessary to implement a settlement-loan plan for first-time buyers would be ready for council approval before the council's August recess or immediately afterward.
The idea for such a program emerged during a recent breakfast meetingwith Natalie Lobe, a real estate agent with Grempler Realty Inc. in Columbia, Farragut said.
Lobe and about eight other Grempler agents have been meeting with first-time buyers every Thursday night from 5 to 7 in the firm's Columbia office.
"We offer advice, counsel, placement -- whatever we can do for them," Lobe said. Since October, they have seen about 80 to 100 individuals and families, but have onlybeen able to "place a handful," she said.
Lobe said most of the people she and the others are talking to have incomes of about $40,000-- which is a good deal higher than the low-to moderate-income families Farragut would like to help. Those families have incomes of $32,400 or less.
Lobe says lenders look at three things when deciding whether to approve a loan: the buyer's income, cash and debts. Most ofthe people Lobe sees have the necessary income and low-debt ratio. The "overriding problem," she says is cash. "They can't come up with it." If the Farragut idea became a reality, first-time buyers would need less than half as much cash for closing costs.
A former state-run program similar to Farragut's proposal for the county was too short-lived to do any good, Lobe says. The Farragut plan would help "all along the line" because it would free up rental units for people who could not afford to buy, she said.
County Housing Commissioner Leonard Vaughan said a settlement plan along the lines Farragut envisions is "an integral part of any affordable housing plan."
Vaughan said he expected Lobe to chair a subcommittee of the Housing and Community Development Board to study Farragut's proposal and make recommendations within 60 days. Still to be worked out, he said, are the criteria for such a plan -- income ranges, time schedules for repayment and repayment ability.
Two things are needed to achieve affordable housing, Vaughan said. He described them as "bringing the cost down, and bringing the families' ability (to make mortgage payments) up."
Ecker said he wants to lower housing costs by speeding the permit process. He said some developers pay more than $3,000 a day in interestwhile waiting for homes in their subdivisions to be approved.
As for the Farragut proposal, Ecker said, "Anything we can do to reduce the cost of housing, we ought to do."