For first time home buyers, affordability to buy the property is usually in question. Down payments, closing costs and even considering the monthly payments are factors to consider. In Massachusetts, there is this thing called Soft Second Loan Program. This is an excellent way for first-time buyers to lower their costs. It is figured that this type of program can increase the homebuyer’s purchasing power up to 25%.
So let us see how this works. Upon buying the home or property, you are entitled to two mortgages. The first one is 77% of the purchase price and is fixed rate mortgage for thirty years. The other one is the “soft” mortgage that is 20% of the purchase price and it charges interest for the first ten years only. This is subsidized by state funds. The 3% is the down payment that is made. This can be easily acquired if this is given as a gift from relatives or it can be a grant given by the buyer.
This is similar to the zero-down private mortgages that we have today because of the crash of the mortgage market. This type of loan lets the buyer take out one mortgage for 80% and then a second mortgage at a higher interest rate to cover the 20%. This second mortgage usually serves as the down payment. However, in Massachusetts the buyer does not need to make principal payments on the second mortgage for ten years. A great thing about this program is that the interest payments are subsidized sometimes up to 75% for the first five years.
Naturally, in order to qualify, buyers need to meet certain requirements. The borrowers need not to earn more than 100% of the median average income in the community – this is around $72,000 for a two-person household. In order to qualify for the subsidies, income has to be 80% of the median. It is required that they are first time buyers and will use the home as their residence. Apart from this, they have to accomplish a home buyer education program and a home safety program before buying the property.