Don't have a down payment for a house? Banks might have a deal for you

Home is where the heart – and frankly most of your money – is.

Most American homeowners – 83% – wouldn't go back to renting after buying a home, according to the 2019 Fall Homebuyer Insights Report issued by Bank of America released last month.

And 70% say they're more emotionally attached than they anticipated, according to the online survey sample of 1,919 adults age 18 and older who currently own a home or plan to do so in the future.

No doubt, homeownership has its challenges, such as a lack of affordable homes for young buyers. So it's important to get a handle on where home prices and mortgage rates are trending. Here are some points to consider: 

Mortgage rates: Sharp drop helps buyers 

The average 30-year fixed mortgage rate is now 3.69%, down from 4.85% a year ago, according to Freddie Mac. 

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“The sharp drop in mortgage rates this year, and particularly the move below 4% this summer, has given a boost to home buying," according to Greg McBride, chief financial analyst for Bankrate.com.

Even so, "the housing market is still pretty tepid, despite an otherwise strong job market," McBride said.

The Federal Reserve policymaking committee met Sept. 17-18 and many expect that another cut in short-term rates could be in the works. 

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Mortgage rates have already fallen quite a bit in the last few months and may not fall on the Fed news, given that the market is likely already pricing in factors that could prompt another Fed cut, said Sarah Mikhitarian, senior economist for Zillow. 

Down payments: New breaks

First-time home buyers, though, say the upfront costs of buying a home remain a challenge. 

Many can afford a monthly mortgage payment, experts say, particularly when one considers that the median rent in metro Detroit is $1,200. 

But about 69% of prospective home buyers say the biggest barrier to owning a home is actually saving enough money for a down payment and closing costs, according to the Bank of America Insights Report. 

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How can you overcome some hurdles?

Some major banks have programs that offer help with a down payment or closing costs to qualified borrowers.

"Sometimes, people think they can't get in a home when they can get in a home," said AJ Barkley, national neighborhood lending executive for the Bank of America. 

Bank of America is offering qualified buyers in metro Detroit and elsewhere a new Community Homeownership Commitment program. 

The $5 billion commitment is designed to help more than 20,000 home buyers across the country. Details include: 

• Through the bank's Down Payment Grant program, Bank of America will give — no repayment necessary — eligible buyers 3% of the home purchase price (up to $10,000) to be used for a down payment. While not available everywhere, the grant is available in nearly 50 markets, including major metros around the country such as Detroit, New York, Los Angeles, Boston, Washington, D.C., Miami, Las Vegas and Dallas. 
• Also qualified buyers may be eligible receive up to $7,500 toward non-recurring closing costs or, in some instances, to buy down their interest rate. The $7,500 closing cost grant is available in markets where Bank of America has branches and offices, which is most of the country. 
• Through Oct. 31, Bank of America is waiving the lender origination fee on Freddie Mac Home Possible, FHA, VA or Affordable Loan Solution loans, which could mean a savings of approximately $1,000.

Some eligible buyers could receive as much as $17,500 to help them purchase a home. Restrictions do apply, including income limits. Some assistance may be available in certain communities and not others. 

Barkley said it's important the prospective home buyers not believe some of the urban myths out there — such as if you have student loans, you can't buy a home, or that you must have a 20% down payment to buy a home.

Many times, she said, someone can find a way to get into a home they can afford. 

"It may not be the mansion you want but it would be a place for you to start," Barkley said. 

Other efforts include Chase Bank's DreaMaker Mortgage Program where qualified buyers can buy a home with as little as 3% down. The program has flexible credit score requirements and reduced costs for mortgage insurance. Someone who takes a home buyer education course under the program can receive $500 toward closing costs and a down payment.

In addition, a grant of $2,500 is available toward closing costs and a down payment for home buyers in low- to moderate-income communities.  

Mortgage interest: New tax rules apply 

Based on the most recent data, 10.76 million federal income tax returns for the 2018 tax year claimed the mortgage interest deduction. 

That's down 62% from 2017 when 28.6 million returns claimed the mortgage interest deduction before the new tax rules went into place.

Based on 2018 tax returns, roughly 8% of all federal income tax returns claimed the mortgage interest deduction.  

President Donald Trump's tax overhaul nearly doubled the standard deduction – to $24,000 for a couple filing jointly – and put limits on some earlier deductions, so it can be more attractive for some to take the standard deduction instead of itemizing. 

Currently, for example, taxpayers cannot deduct more than $10,000 of total state and local taxes.

In addition, taxpayers can only deduct mortgage interest on up to $750,000 in new qualifying debt. That's down from a $1 million cap earlier. 

The $1 million cap would still apply if you are deducting mortgage interest from debt taken out before Dec.16, 2017.

Affordable homes: Keep looking

We are seeing some unusual signs of a softening market that could help potential buyers. 

Drive around metro Detroit's popular Woodward Avenue corridor and you may spot lawn signs that say "Buy this home and we'll buy yours!"

Some of these signs showed up on attractive homes in the $350,000 and up range that are being marketed by Jim Shaffer and Associates, a Royal Oak-based Realtor group. 

Shaffer, the lead agent of the group, said he began using the "Buy this home and we'll buy yours!" slogan in the spring and the group has since bought 10 homes in such deals – nine in Oakland County and one in Detroit. 

Shaffer copied the idea from another Realtor who tried it some time ago in the Washington, D.C., area.

Many times, he said, "home owners are afraid to sell their current home because they don't want to be homeless." 

If they sell too quickly, they're afraid they won't be able to find an attractive home immediately in the same area. Some sellers want a bigger home; others are downsizing. 

"They're just buying the right size house for where they are in their life," Shaffer said. 

Opting for an instant sale, of course, means you're likely taking 10% or so less than you might get otherwise with a more traditional sale. And you're giving up the possibility of a bidding war. Shaffer said he explains the trade-offs upfront.

"It's not one-size fits all," Shaffer said. "Some people do want the traditional sale. And other people want the instant sale." 

While buyers are in some position of power, the market for affordable, entry-level homes remains ultra-competitive across much of the country.

In metro Detroit, 17.4% more homes were for sale than a year ago based on July data, according to Zillow.

Yet the bulk of the new For Sale signs are popping up on lawns of much more expensive homes.

Zillow's Mikhitarian noted that there are nearly 26% more higher-end homes – defined as homes in the top third of the market – up for sale in metro Detroit relative to this time last year. Top-tier homes are $241,250 and above in the Detroit area. 

Inventory of middle-tier homes in Detroit is up 19% relative to last year.

That's one reason why house hunters may be spotting some unusual types of offers. The idea is to stand out in a crowded field – and maybe find a way to get lower-cost homes on the market. 

House hunters in metro Detroit are only seeing 12% more entry-level homes up for sale – defined as homes in the bottom third of the market – relative to this time last year. Lower-tier homes in the Detroit metro area are $103,750 and below.

Home values: Still going up

Nationally, home value growth is strong but slowing steadily in many major markets, Mikhitarian said.

Only three out of 50 of the largest markets in the United States – New Orleans; Birmingham, Alabama; and Oklahoma City – are seeing home values growing at a faster rate now than this time last year.

Home values are growing the fastest in Salt Lake City, up 9.4% since July 2018, according to Zillow. Other strong markets include Indianapolis, up 8.1%, and Charlotte, North Carolina, up 7.3%.

Home values in metro Detroit have gone up 4.6% over the past year and Zillow predicts they will rise 2% within the next year.

What is considered a bargain, of course, depends on many factors and someone’s perception. A deal in San Francisco would look overpriced in much of the Midwest.

"Looking ahead, we predict home values in the Detroit metro will continue to rise, albeit at a much slower pace than over the past several years. This is similar to the pattern we are seeing nationally," Mikhitarian said. 

ContactSusan Tompor  at313-222-8876 or stompor@freepress.com. Follow her on Twitter@tompor. Read more on business and sign up for our business newsletter.