Rising home prices, wages that haven't kept pace with those increases and high levels of student debt are forcing first-time home buyers on Long Island, N.Y., to find creative ways to afford the biggest purchase of their lives.
Buyers are discovering loans and grants that can add tens of thousands of dollars to their budgets.
Others are reducing the burden of student loans through refinancing or repayment plans, or saving for down payments by foregoing a lavish wedding and honeymoon.
For many, these measures are a necessity, given that local home prices have risen more than twice as fast as wages since 2000. In Nassau County, residents reported a median household income of about $99,500 during the five-year period ending in 2015 — 38% higher than in 2000, census figures show. That is less than half the 77% growth in home prices over the same period, to about $468,500, according to figures from the Multiple Listing Service of Long Island.
In Suffolk County, home prices have risen more than three times faster than wages. Suffolk's median household income grew by 23% from 2000 to the five-year period ending in 2015, to $88,700, census figures show. Meanwhile, home prices soared by 82%, to $345,000, the listing service reported.
That gap keeps growing, more recent figures show. In the third quarter of this year, Suffolk's median home price was up 13% from a year ago, while weekly wages grew by 5%, California-based real estate information company Attom Data Solutions reported. In Nassau, home prices increased by 6% and wages rose by 4%.
"The one word that comes to my mind regarding first-time home buyers is 'overwhelming,'" said Joe Moshe, owner of Plainview-based Charles Rutenberg Realty. "There are so many obstacles they have to leap over right now."
Indeed, Long Islanders' average student debt load spiked by 82% over the 12-year period ending in the last quarter of 2016, when local graduates carried an average $32,400 in student loans, the latest figures from the Federal Reserve Bank of New York show.
With student debt loads so high, the additional cost of a mortgage, taxes and insurance "really prices people out of the market," said James Britz, executive vice president of the Long Island Housing Partnership in Hauppauge, which counsels home buyers and builds and rehabilitates homes for low- and moderate-incomes buyers.
Help for first-time buyers
Lenders, not-for-profit groups and elected officials are trying to help first-time buyers overcome those challenges. It's part of an overall effort to make it possible for millennials and other Long Islanders to stay in the region despite its high cost of living.
A measure allowing first-time home buyers to create savings accounts that would give them a state income tax deduction — similar to college savings accounts — passed both houses of the State Legislature with near-unanimous support earlier this year. The bill is undergoing legal review, a spokesman for Gov. Andrew M. Cuomo said.
Recent graduates "are starting out with huge college costs, and the idea of purchasing a home may seem almost impossible financially for them," said Sen. Phil Boyle, R-Bay Shore, a co-sponsor of the bill. "We need to make it affordable to millennials so they will get it into their minds that they should not be renting or living in their parents' basements into their 30s."
Not-for-profit groups as well as federal, state, county and, in some cases, local government agencies offer loans and grants for down payments, closing costs and repairs. They include the State of New York Mortgage Agency, which offers low-interest, low-down-payment loans to borrowers who might struggle to qualify for mortgages from private lenders. The Federal Housing Administration allows borrowers — not just first-time buyers — to make down payments as low as 3.5% of the purchase price. And Fannie Mae, the government-sponsored mortgage giant, announced this spring it would allow buyers to refinance student debt into a mortgage and loosen certain restrictions that prevented debt-burdened graduates from qualifying for home loans.
First-time home buyers often do not know about the programs that can help them, said Gwen O'Shea, chief executive of the Community Development Corp. of Long Island, a Centereach-based group that helps buyers obtain loans and grants and also provides training in home repairs and help purchasing homes that the corporation has rehabilitated.
Grants to buy, fix bank-owned home
Among those benefiting from little-known sources of aid is Sean Rubinstein, who was surprised to discover that he qualified for $50,000 in grants to purchase and fix up a vacant, bank-owned home in Medford. The 45-year-old electronics engineer started looking last year, when he learned that his monthly rent in Ronkonkoma would rise from $1,550 to $1,625.
At first, he thought he would need to scrape together the funds to make major repairs on the 50 or so "barely livable" homes he saw in his price range of $200,000 to $250,000, including one with a leak extending from the roof through two stories down to the basement.
Then Rubinstein attended a home buyer education session at the Long Island Housing Partnership, and learned about the State of New York Mortgage Agency's Neighborhood Revitalization Program. It offers grants, in the form of loans that get forgiven over 10 years, of up to $20,000 to rehabilitate Long Island's vacant "zombie" homes — abandoned houses that have fallen into disrepair. The grants, funded by $22 million from a 2013 settlement the state reached with JPMorgan Chase over alleged mortgage foreclosure abuses, are available to homeowners making up to $199,440 for one or two people or $232,680 for a family of three or more. Rubinstein also qualified for a $30,000 grant for down payment assistance from the state Community Stabilization Program.
He went into contract on one bank-owned home, only to have the deal fall through when squatters moved in. Finally he found his current home, a three-bedroom ranch-style house on a corner lot in Medford, built in 2004. A lender had taken the home back in foreclosure court.
"It was one of the best foreclosures I'd ever seen, no holes in the walls, it was livable — I could move right in," he said. It took three months to close on the $199,000 purchase.
Now Rubinstein enjoys the benefits of homeownership, such as grilling steaks and burgers in the backyard. And his monthly payments, including taxes, total $1,526, he said.
"I wish I had done it years ago," Rubinstein said. "I didn't believe I could actually be paying less to own a home on Long Island than to rent."
Proving they could afford to buy
For Amanda and Kevin Smith, it was crucial to demonstrate that they could afford the four-bedroom Huntington Station home they purchased in August, despite Amanda's roughly $250,000 in student loan debt. Amanda, 31, an attorney for a state agency that advocates for people with disabilities, is on a payment plan that ties her loan payments to her income, making her loans more affordable than they appear.
"The most important step was to communicate with our mortgage broker that I was on income-based repayment and provide all of the supporting documentation," she said. "This way, our monthly debt to income ratio was appropriately calculated."
Their real estate agent, Emilia Pizzo of Daniel Gale Sotheby's International Real Estate in Northport, said buyers need to speak with a loan officer early on so they can learn the steps they should take to help qualify for a mortgage, such as paying off car loans.
It also helps to get a "pre-commitment" from a lender, meaning an underwriter has reviewed the file, she said. "It gives the sellers a little peace of mind and in this competitive market, sets that buyer apart from the others," she said.
Even for those not already burdened by debt, it can be hard to buy a house on Long Island. Cassandra Erb and her husband Alexander Benvenuto researched grant programs, but they didn't qualify. While they had no student loans, they still found they needed to take dramatic steps to afford homeownership.
In part because they wanted to save for a down payment, Erb, 30, a private investigator, and Benvenuto, 29, a plumber, ditched their plans for a big wedding in favor of a celebration at their beloved John's Pizzeria in Greenwich Village, followed by a family barbecue. Instead of a lavish honeymoon, they used credit card points for a trip to Rome, where they stayed with Benvenuto's brother, and Amsterdam, where they booked an Airbnb.
They are now in contract to buy a home in Islip that was listed for $350,000. They plan to add a bathroom, update the kitchen and do "a ton of landscaping," among other improvements, Erb said.
"We're going to be paying almost $13,000 in taxes per year," she said. "It's scary to think we want to make improvements to the house, but if we do that our taxes are going to go up."
Even so, many young adults believe homeownership is preferable to renting.
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