City to provide loans for settlement costs $2.5 million slated for new program

October 09, 1992|By Ellen James Martin | Ellen James Martin,Staff Writer

With Baltimore home closing costs running higher than anywhere else in Maryland, Mayor Kurt L. Schmoke outlined yesterday a new $2.5 million city bond program to provide second-mortgage loans to meet settlement expenses.

"We continue to promote homeownership in the city," the mayor told a breakfast meeting of the Greater Baltimore Board of Realtors, which was billed as a discussion of "The State of Baltimore City."

The mayor said the first bond offering -- involving the sale of taxable bonds -- would likely take place before the end of this year.

"The first bond sale will be a pilot project and, if all goes well, we'll have a second sale, also for $2.5 million," said the mayor. Details of the plan, which is expected to become available to borrowers in January, must still be worked out, he said.

Under the program, a prospective homebuyer could borrow up to $5,000 for closing costs on the purchase of a city property selling for between $60,000 and $100,000.

The term of the loan would be up to 10 years. The loan would come inthe form of a second mortgage on the home and would be made by one of five local financial institutions, which the city has yet to identify.

"We're not going to disclose their names at this time," said David Elam, development director for Baltimore's Department of Housing and Community Development. "They're all on board but until the ink is dried, we don't want to put their names out there."

He did say, however, that the five institutions include three local banks, one credit union and a savings and loan association.

There will be no income ceiling associated with the settlement expense loan program, nor would a borrower have to be a first-time buyer to qualify.

Loans would be made at the prevailing market rate, and borrowers would be subject to the same qualifying credit ratings typically associated with mortgage lending, Mr. Elam said.

Settlement costs for a home purchase include taxes, recordation fees and closing costs paid to the lender, among other things. Which of these costs would be included in the city's program has not yet been decided.

City settlement costs for a home purchase typically run 8 to 9 percent of the purchase price of a home, while those in most other jurisdictions in the state run 5 to 6 percent, Mr. Elam said.

The difference is that a home buyer typically must pre-pay 12 months' worth of property taxes when he settles on a property in Maryland, and property taxes are higher in Baltimore, he explained.

Baltimore realty executives welcomed news of the program.

"I think it's a great idea -- certainly it's a step in the right direction," said Peter Sheehan, sales manager for Coldwell Banker's Charles Street office, which sells real estate in both Baltimore and Baltimore County.

Although buyers of Baltimore homes are confronted with the highest closing costs in the state, Mr. Sheehan said the mayor's announcement yesterday marked the first time in memory that the city had taken a step to help prospective buyers over this ownership hurdle.

He said the buyers of a wide range of city property could benefit from the program, since much of Baltimore's housing stock falls in the $60,000 to $100,000 range.

"The hardest thing for a buyer to do is save the settlement costs plus the down payment," said Arthur Davis, president of Chase Fitzgerald, a Roland Park-based realty firm.

Although the second mortgage loans made through the city jTC program would be offered at the market rate, he said many homebuyers could not normally make such loans in time for settlement.

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