Mortgage changes mean equity is key for homebuyers

Alex Gary

Stan Metzler, a 22-year-old Winnebago County sheriff’s deputy, wasn’t in a rush to buy a house.

He was making a good living as a deputy and saving tons of money living with his father.

But he started the search after talking to Shane Hartje, CEO of 1st Step Mortgage in Rockford, to take advantage of down payment assistance programs that would allow him to buy a house without digging into his savings.

“That was definitely a big thing,” said Metzler, who bought a newly built house in South Beloit for $131,500. “I’d have waited another six months to buy the house. Instead of having to put down $4,000 as a down payment, I spent only $200 out of my own pocket.”

Metzler's rush helped him take advantage of the down payment assistance programs that have helped thousands move into new homes over the past 10 years. But as part of the Housing and Economic Recovery Act of 2008 signed into law in July, those programs — AmeriDream and Nehemiah Program, each of which would pay the 3 percent down payment requirement — were eliminated Oct. 1.

In response to the record wave of foreclosures that have sent ever-widening ripples through the economy, the new law’s goal was to force people to spend some of their own money to buy a house. In its place, legislators created a $7,500 tax credit to first-time homebuyers. Qualifying buyers who buy a house before July 1 receive the credit, which they have to pay back in $500 increments over the next 15 years or when they sell the house.

Hartje is worried the change will, if anything, slow the market even more.

“They’ve taken a home market that was down and kicked it in the gut,” said Hartje, who has about 30 employees at 1st Step.

Past studies by groups such as the Mortgage Insurance Cos. of America have shown that the down payment is the biggest hurdle to homeownership. That’s bad news for an industry where existing home sales were off nearly 11 percent in August compared to the same time last year, and residential construction nationwide is in the biggest slump since the early 1980s. Locally, sales of new and used homes in Boone, Ogle and Winnebago counties are running 34 percent behind 2007’s pace.

But if you are considering buying a house for the first time, Hartje said it’s best to do it before the end of the year. Buying late in the year means you won’t have to wait long to receive the tax credit, and as of Jan. 1, the down payment requirement by loans through the Federal Housing Authority increase from 3 percent to 3.5 percent. For someone buying a $100,000 house, that’s an additional $500 to pay at closing.

“We’re trying to get that message out, the Rockford Association of Realtors is trying to get that message out,” Hartje said. “It’s important to have as much money as possible when you make the move to homeownership.”

Alex Gary can be reached

First-time homebuyer tax credit at a glance

The tax credit is available for first-time homebuyers or for people who have not owned a house in at least three years.

The maximum credit amount is $7,500.

The credit is available for homes purchased on or after April 9 and before July 1, 2009.

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

The tax credit works like an interest-free loan and must be repaid over a 15-year period.

For more on the tax credit, go to