Shall I Build A House
after the War?
Has It Been Made Easier To Buy A Home?
have discussed the chief obstacles to buying a home—its expense and the
danger of losing the investment through foreclosure. Now let us look at the brighter
side of the picture.
In recent years it has been made easier for people
to buy homes by (1) increasing the size of the first mortgage, thus largely doing
away with costly second and third mortgages; (2) lowering the interest rates;
and (3) amortizing the mortgage—that is, making the principal payable in
small regular installments over an extended period instead of in one lump sum.
These changes have been accomplished largely with the help of the federal
government. Buying a house is now about the same process as buying an automobile
on the finance plan—putting a portion of the purchase price down and paying
the rest in regular installments-with the exception, of course, that the house
costs much more and usually takes longer to pay for. The rate of interest on mortgages,
an important part of the total cost of any property, is one thing that has been
greatly reduced in recent years. In 1931 interest rates of savings and loan associations
on mortgages alone—including special fees or discounts—ranged from
6.2 percent a year in Connecticut to 15.3 in Tennessee.
1931 a second, and perhaps a third mortgage, at much higher interest rates than
was charged for the first, was often needed in order to buy a house. Thus, if
70 or 80 percent of the selling price was borrowed, 50 to 60 percent would be
in a first mortgage and 20 to 30 percent in a second and perhaps a third. The
total annual interest payments might then be 2 or 3 times that of the interest
on a first mortgage alone. Both first and second mortgages had to be renewed periodically,
and a part or all the costs of making the mortgage paid over again.
factors, the efforts of private lenders to do a better job, and government action
have helped to change the picture. A break in this expensive system was made in
1933 when the Home Owners’ Loan Corporation began to refinance mortgages
at 5 percent. In 1934 the Federal Housing Administration set a rate of 5 percent
for insured mortgages, plus 1/2 percent a year for insurance and 1/2 percent as
a service charge. In 1939 the rate was brought down to 4.5 percent and the service
charge was abolished, but the insurance charge of 1/2 percent was kept. In general,
interest rates on mortgages are now around 5 percent. Buying property has also
been made easier by smaller down payments. The HOLC in 1934 began to lend home
owners up to 80 percent of the value of the property, with second mortgages eliminated
entirely. Shortly afterward the Federal Housing Administration began to insure
mortgages up to 80 percent. Later the FHA increased the figure to 90 and even
95 percent of the value of the property. In defense areas it has required of the
buyer little or no down payment.
Houses on the Postwar Horizon