State continuing homebuying incentive program after success of first phase

The state is continuing a homebuying incentive program after the success of its first phase.

A state incentive program for aspiring homebuyers with more than $25,000 in student debt ran out of money in less than two months, officials said Monday.

With a new infusion of money, the You've Earned It program is now in its second phase and could be extended still further as the state tries to encourage millennials to buy homes.

"It's really turned the negative of student debt into a positive of homeownership," said Tiffany P. Robinson, the assistant secretary of development finance in the state Department of Housing and Community Development. "We want to allow them to participate in the American dream."

The state announced You've Earned It in May and allocated $20 million to its first phase to help individuals with high student debt and veterans buy homes.

The money was used to make loans at a fixed rate of 2.75 percent, down payment assistance and a tax credit for the life of the loans to buyers whose debt loads might have made it difficult for them to buy a home on their own. It was not used to help participants pay down student debt.

Of the 81 loans made through the program, Robinson said, about 77 percent were made to buyers under the age of 35. The median age was 30.

The incentive is available only for those who buy in designated "sustainable communities," or those deemed in need of reinvestment. The designation includes all of Baltimore.

The second phase of You've Earned It was funded with $70 million. The state has spent about $14 million so far, Robinson said.

In its second phase, the program is offering a 0.25 percent discount on the standard Maryland Mortage Program rate, which varies daily, and $5,000 in down payment assistance.

More funding could be in the works: "We anticipate maybe even a more unique third phase coming in the next few months," Robinson said.

The state, Baltimore City and employers such as the Johns Hopkins University offer a host of financial incentives to encourage homeownership. The Maryland Mortgage Program, through which many of the incentives are offered, has income restrictions.

About 30 percent of millennials ages 18 to 29 put off buying a house because of student debt, according to a Bankrate survey this year. Many also postponed other financial actions, such as saving for retirement or buying a car.

"Student debt has certainly played a part in the millennial generation's hesitation to buy," said Annie Milli, a spokeswoman for Live Baltimore. "I think it's why we've seen such a strong rental market for so long.

"But the homebuying market is bouncing back. Affordability is something they're concerned about. It's something that positions Baltimore City ahead of the surrounding counties: Our median home price is the lowest in the region."

Typically, Milli said, millennial buyers are interested in areas that are walkable and have a sense of community — which means many are interested in living in the city.

Ross Mackesey, the president of the Greater Baltimore Board of Realtors, said it is rare that buyers are denied a mortgage because they have student debt. What's more common, he said, is that they will have difficulty saving enough for a down payment, or they think they need much more money for a down payment than they actually do.

Robinson said the millennial buyers taking advantage of the program typically had decent credit, with an average score of about 709 — but had little savings.

Mackesey said some believe they wouldn't qualify for a mortgage because they've heard about lenders tightening requirements after the recession.

"Everybody was talking about we're going to go back to the old school of 20 percent down and the like, and that's not the case," he said. "And because the millennials had the experience of the Great Recession, they are more fiscally conservative."

Mackesey said the incentive program helps show those buyers that they might actually qualify.

This year, lower-priced homes are selling more often, indicating that there are more first-time home buyers shopping.

"It's obvious that the first-time buyer is a bigger part of the market than it was a year ago," Mackesey said.

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