In the past few months, former President Donald Trump has floated several ideas aimed at helping Americans buy homes again. Among them are proposals such as 50-year mortgages and other creative financing tools aimed at lowering monthly payments for consumers struggling with today’s interest rates.
The purpose of these ideas is novel and understandable. Housing affordability has become one of the biggest economic challenges facing Americans. Mortgage rates remain much higher than they were a few years ago, and housing costs have continued to rise across the country. However, extending the loan to 50 years or extending the loan terms may not necessarily solve the problem. In many cases it simply spreads the cost over a longer period of time rather than reducing the overall burden.
So here is another idea to consider. Currently, the federal government collects billions of dollars in taxes and other sources of revenue. Most of that money just flows into the government’s general fund. What if a portion of those funds were used to directly support first-time home buyers using federally subsidized loans?
My idea is simple… If a buyer qualifies as a first-time homeowner and buys a property using a federal loan program such as an FHA or VA mortgage, the federal government can contribute 6 percent of the purchase price toward the buyer’s closing costs or purchase interest.
In other words, aid would move from one government system to another. The buyer uses a federal loan, and the federal government helps reduce the upfront cost. It’s Fed-to-Fed support designed for first-time and veteran buyers.
To understand the impact, consider the numbers. According to the National Association of Realtors, the median price of an existing home in the United States recently increased to $390,000. A 6 percent down payment on a home at that price would equal $23,400. That amount can make a big difference to a first-time buyer. Buy-out mortgages are often priced in “points,” where one point is equal to one percent of the loan amount. According to data from Freddie Mac and industry lending guidelines, each point lowers the loan rate by about 0.25 percent. That means lowering your mortgage rate by 0.50 percent to 1 percent can cost somewhere between 2 and 4 basis points, depending on market conditions.
For a $390,000 home purchase, the buyer’s loan may be around $370,000 after the down payment. A 2 to 4 point purchase can range from $7,400 to $14,800. With a federal offer of $23,400 available, a buyer can lower their interest rate by a full point and have money left over to pay closing costs. That kind of help will improve accessibility quickly.
A lower interest rate lowers the monthly mortgage payment. Low closing costs reduce the amount of money needed to buy a home in the first place. For many first-time buyers, that down payment requirement is a major hurdle to home ownership.
Yes, safeguards will need to be built into the system. For example, a home may need to be owned for a certain number of years. Income limits or purchase price limits can be imposed to prevent abuse. These are standard provisions in most housing assistance programs. But the impact can be huge. Such a program would stimulate housing demand, help new families enter the market, and provide meaningful support to veterans who rely on VA loans. At the same time, it will invigorate the broader real estate industry, including builders, lenders, and local economies associated with real estate activity.
And politically, it would be a powerful victory. If Donald Trump were to preside over a program like this, he would officially say that during his presidency the federal government helped first-time buyers and veterans beat high interest rates and achieve home ownership.
Sometimes, the best solutions are not about developing complex financial products. Sometimes, they are about using existing tools in clever ways. Helping first-time home buyers lower their housing costs may be one of the most effective housing policies Washington can implement right now. So, if you’re reading this, please share it with President Donald Trump.
Bobby Bryant is the CEO of homhub.ai.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].
