Among South Carolina's larger cities, Columbia is one of the more affordable places to buy a home, and two underutilized government initiatives could make the city even more economically attractive.
Unlike most homebuyer assistance programs I’ve written about, these two “City Lender” programs are limited to buyers of single-family homes located within the capital city limits.
Both plans offer low down payments and a low-interest loan of 4 percent that covers 20 percent of the total debt. Importantly, they are structured so that buyers do not have to pay private mortgage insurance, a monthly expense that can be quite costly for those who can't afford a 20 percent down payment.
According to calculations provided by nerdwallet.com, the monthly PMI payment on a $285,000 loan would be $188 for someone with a credit score of 700. And all that gets you is protection from the lender.
In the example I used, with a 5 percent down payment, the borrower would need to make monthly mortgage payments for nearly 11 years before they reached 20 percent equity and could stop paying PMI. At that point, the borrower would be paying over $24,300 in PMI. Avoiding this scenario and having a lower monthly mortgage payment is the biggest benefit of the City Lender program.
Of the two versions, one is for buyers earning up to 80% of the local median income (or $48,650 per person), and the other is for residents earning between 80% and 120% (or up to $72,975), with figures increasing depending on family size.
Thus, the income rules for the two initiatives cover most people. There are also caps on home price loans, at $205,000 for the City Lender 1 program and $318,000 for City Lender 2.
In some parts of the state, there are few homes for sale in that price range, but in Columbia there are plenty.
Below is an overview of two programs that don't require a credit score above 600 and don't require private mortgage insurance.
City Lender 1:
Income Limit: Up to 80% of Area Median Income. Maximum Purchase Loan Amount: $205,000. Down Payment Required: $500. Closing Cost Assistance: Up to $3,500 in forgivable loans.
City Render 2:
Income limits: 80-120 percent of area median income. Maximum purchase loan amount: $318,000. Down payment required: $2,000. Closing cost assistance: None
Not only will you avoid PMI, but you’ll also save money on financing costs by putting down 20 percent of the loan amount at a 4 percent interest rate.
For example, if you borrow $40,000 at 7.5 percent, your monthly payment will be $280, but if you borrow the same amount at 4 percent, your monthly payment will be $191.
Between interest rate savings and avoiding PMI, homebuyers can save approximately $300 per month by taking advantage of the City Lender program.
Not much is known about these assistance programs, it's clear: According to the Department of Community Development's annual report, only three loans were issued under the two City Lender programs during the 2022-23 budget period.
The Buyer Program is for people who are buying a single-family home to live in. Buyers cannot own another home at the time of closing.
Like most homebuyer programs, this one requires mandatory first-time buyer education, which may require taking an online course that takes several hours.
Buyers who want to take advantage of any of the City Lender programs must work with one of Columbia's lending partners: Palmetto Citizens Federal Credit Union, Synovus Bank, First Citizens Bank, Assurance Financial, SouthState Bank, First Community Bank and Security Federal Bank.