With Vermont homebuyers paying higher closing costs than the national average, the Vermont Housing Finance Agency is launching a new down payment assistance program this week.
The Vermont Housing Finance Agency, or VHFA, cites Bankrate.com data showing that closing costs in the state rose 5.7 percent in 2013. A Vermonter faces an average $19,000 in closing costs on a 5 percent down payment or $16,000 with 3 percent. That’s the annual salary of a minimum wage worker. Erhard Mahnke is the coordinator of the Vermont Affordable Housing Coalition. “The median sale price last year for a home in Vermont was just under $200,000, about $193,000. That would require an annual income of about $57,000 a year to afford that and it would require just under $16,000 cash at closing. $16,000 is hard for a young family to save that’s saddled with student debt; that’s renting in our market. It makes home ownership almost impossible without some kind of down payment assistance to help get folks into home ownership.”
The Housing Tax Credit program was approved by the state legislature earlier this year. It allows the VHFA to sell tax credits to investors to fund the program. The VHFA then helps first-time homebuyers with down payments. Eligible borrowers will be able to get a zero-percent deferred loan up to $5,000 according to Executive Director Sarah Carpenter. “We increasingly are seeing home buyers being required to come to the table with increased closing costs and fees. Vermont is one of the higher states with our closing costs. They can be upwards of $9,000 in addition to whatever down payment, you know 3 percent, 5 percent. So that’s a lot of cash up front for borrowers. And particularly in the Champlain Valley this tight rental market, it’s difficult for young families to save what they need for the down payment and pay the market rents that are being required. We also know that many of our target borrowers have student debt. So we hope that this program will help those first time borrowers.”
Mahnke believes that as the VHFA helps the first-time homebuyers, the program will also help loosen the state’s tight rental market. “I’m not a firm believer in the trickle down theory of housing. But if you move a hundred households out of the rental market into home buying that will help. Every little bit helps. Our rental markets are so constrained and that 1 percent vacancy rate makes supply and demand be so out of whack that it drives up rent, it drives up costs while Vermonters wages remain relatively flat. We have such challenges in our rental markets around Vermont that every little bit helps.”
Republican Senator Kevin Mullin is Chair of the Economic Development, Housing and General Affairs Committee. He notes that the enabling legislation for the program was part of a larger economic development bill. “What we heard is one of the impediments to filling unfilled positions at Vermont employers with young professionals is the fact that it’s so expensive to live in Vermont as far as housing and especially to try to own your own home. We know that once somebody makes an investment and buys their own home they’re more likely to stay in Vermont. So it was an important piece of the economic development bill that we have something that helped to help people purchase their own house and be able to stay in Vermont. And one of the impediments was the high costs of closing so we put in the first time homebuyers tax credit.”
VHFA expects to have about $600,000 available for the fiscal year that ends June 30th. The program is limited to first-time homebuyers.