By Markian Melnyk, Realtor
You may have heard the saying, “If you fail to plan, you’re planning to fail.” Let’s turn that around and talk about some strategies an imaginary couple, Sara and Mike, could include in a plan to succeed as first-time home buyers. Sara and Mike work in the Baltimore area, have not owned a home before and they’re saving to buy a starter home. Maybe some of these approaches may work for you.
Saving for a Down Payment. Sara and Mike know that a down payment will help them to qualify for more lending programs and, all else being equal, the bigger their down payment the less they will need to borrow. That will help lower their monthly payment and reduce the stress around their budget.
The couple can save more for a down payment with Maryland’s First-Time Homebuyer Savings Account. They open a bank account (or a brokerage account) that they use only for saving for a down payment to purchase a home in Maryland. They can save up to $5,000 per year for 10 years – up to a total of $50,000. Each year when preparing their tax returns, they deduct the annual amount saved, up to $5,000 each year, plus the annual earnings on the account, from their Maryland taxable income. And when they use the savings as a down payment they can withdraw it free of Maryland tax.
If Sara and Mike are in the 5% Maryland tax bracket, each $5,000 contribution helps them avoid $250 in Maryland income taxes, or $2,500 over 10 years. This is not huge, but it is free money and one part of achieving their goals.
Learning about Mortgage Loans. Sara and Mike know that a good credit score and limiting other debts is important for qualifying for a mortgage loan and earning a lower interest rate. But they might not be aware of the full extent of help that’s available, especially to first-time homebuyers. The Maryland Mortgage Program (MMP) is a good place to learn more.
MMP has several 30-year fixed rate mortgage loans available through approved lenders. For example, their SmartBuy loan program allows up to $20,000 of Sara’s student loan balance to be paid off at the closing for their new home. The student debt payoff portion is a 0% interest loan that is fully forgiven after 5 years if Sara stays in the home. Sara and Mike also learned that they could qualify for an additional $6,000 of down payment assistance which is treated as a 0% interest loan that is repaid when they eventually sell the home or pay off the mortgage loan. They have to meet program requirements like a minimum credit score of 720 and they need to take a homebuyer education class, but with a little advance planning they think they can make this program work for them.
Live Near Your Work. Mike works as an emergency room nurse at the University of Maryland Medical Center, Shock Trauma Center. He talked to the human resources office at work and learned that his employer is one of the over 100 Baltimore companies and institutions that participate in the Live Near Your Work program. His employer can provide up to $5,000, which is matched up to $2,500 by Baltimore City, for Mike to buy a Baltimore home. Mike learned that, like the MMP, he is required to take a homebuyer counseling course and that he needs to qualify for the program before making an offer to purchase a home.
These three ideas may not work for everyone. But they are worth exploring because they might work for you. Dreaming about owning the roof over your head someday is fine. It’s important to picture your future. Just don’t stop there. Make your dream a plan and then start taking the small steps each day that will get you there.
