In many U.S. cities, it’s the era of the $1 million starter home. But there is another side to this housing market: homes under $100,000. (Yes, they still exist.)
Although the average U.S. home hasn’t touched that price since the mid–1980s, buyers can still find relatively affordable homes in pockets of the country. Getting a mortgage for these houses, however, is difficult. The bipartisan housing bill Congress passed today tries to address this issue.
Craig Richardson, a professor of economics and finance at Winston-Salem State University, is perusing Zillow for homes under $100,000 near where he lives in North Carolina.
“I'm looking at [a] two-bedroom, one-bath, 729-square-feet,” Richardson said. “That's a nice little cottage. Another one is $55,000 — it's a multifamily home. Another condo is $89,000.”
Richardson actually bought a similarly-priced condo as an investment.
“We had to refinance and wrap this condo into a larger loan that included both our house and the condo,” he said.
He couldn’t get a small mortgage for just the condo. And that’s pretty common. People typically pay cash or go with riskier financing, “such as land contracts, rent-to-own agreements, or lease purchase,” said Tara Roche, project director for housing policy at The Pew Charitable Trusts.
Roche said it’s hard to get a small mortgage because lenders don’t like them. They have fixed costs no matter the loan size.
“And it can make those small mortgages difficult to pencil for lenders,” Roche said.
Making it worth banks’ while will likely require regulatory change. According to Roberto Quercia, a professor of housing and community development at the University of North Carolina at Chapel Hill, Congress’ housing bill calls for that.
“It creates a policy and regulatory framework to eventually implement changes,” Quercia said.
Keyword? “Eventually.” Quercia still doesn’t think $100,000 mortgages will be easy to find anytime soon. |