Southold Town is considering a first-time homebuyer loan program to help local workers afford a down payment, but a shortage of homes priced at or below the proposed eligibility cap could limit how many buyers benefit.

The proposal would provide eligible buyers with up to $135,000 toward homes costing no more than $750,000, using $1.4 million from the town’s Community Housing Fund.

Town officials outlined the proposal during a June 16 work session, saying it would replace an earlier version that offered $40,000 loans but failed to reduce monthly mortgage payments enough to make them affordable. The earlier version also could not be paired with a similar Suffolk County down payment assistance program.

Under the revised plan, the town would cover up to 18% of a home’s purchase price, with the buyer contributing 2%. Officials said the goal is to help buyers reach a 20% down payment, avoid private mortgage insurance and reduce monthly mortgage costs.

“The evolution to a percentage instead of a flat subsidy is very promising,” Councilwoman Kate Stevens told The Suffolk Times. “By putting 20% down, PMI is eliminated and the monthly cost of the loan is significantly reduced, resulting in affordability not just on closing day but over the life of the loan.”

Officials estimate the revised program would reduce a buyer’s monthly mortgage payment to about $4,512, a savings of roughly $1,217 per month.

“It’s really scaled to help about 10 families,” Ms. Stevens said. “It won’t be 10 families all buying homes at the same moment. The program would roll out over time.”

The town would recoup the loan when the property is sold. Officials have not yet decided whether the loans would accrue interest.

But the proposal faces a basic challenge: Few Southold Town homes are listed at or below the proposed $750,000 cap.

A recent review of listings on real estate websites, including Zillow, found only six homes priced below the cap. The average Southold Town home price reached about $1.2 million in 2026.

Over the past two years, 133 homes sold for $750,000 or less. Those homes tended to be significantly older than the town’s housing stock, with many dating back decades. While the program’s price range captures some existing inventory, buyers may still face renovation or maintenance costs that aren’t reflected in the purchase price.

Douglas Elliman Real Estate broker Melissa Principi said homeowners generally should spend no more than 30% of their gross monthly income on housing costs. Under the town’s proposal, however, a household earning Suffolk County’s median income of about $130,000 annually would spend roughly 40% of its income on the estimated monthly mortgage payment.

“Conceptually, this plan works for other areas, but the demand here for second-homebuyers is too high that it won’t work,” Ms. Principi predicted. “There are so few homes in that price point, so all types of buyers are fighting over them.”

Ms. Principi said the town may eventually need to increase the $750,000 threshold for the program to benefit more prospective homebuyers. She said the town also needs to focus more on developing homes that remain affordable in perpetuity. Because sellers often prefer buyers who can make larger down payments, those relying more heavily on bank financing can be at a competitive disadvantage.

Ms. Stevens, a Democrat elected to the board last year, raised concerns during the June 16 work session about whether there would be enough homes at the $750,000 price for the program to work.

“The thinking was its ok if the number of eligible properties skews on the lower end,” Ms. Stevens said. “This program is not for everyone or for every property. It is one piece of a larger puzzle that aims to rebuild the year-round housing inventory through greater affordability and supply, including homeownership assistance, rentals, ADUs, and short-term rental reform.”

The proposal sets a purchase-price cap in part to keep eligible homes below the price at which an added 2.5% transfer tax would apply.

The cap “helps keep you under that threshold,” Ms. Stevens explained, allowing the program to reach deeper affordability. She also said officials have discussed asking New York State to raise the exemption limit, which could allow the program to cover higher-priced homes in the future.

Andrea Sullivan, the town’s community development project supervisor, said the proposal is one of several housing strategies the town is pursuing through the Community Housing Fund, which is supported by a 0.5% real estate transfer tax.

Other recommendations included an accessory dwelling unit subsidy program and subsidies for developers creating rental or owner-occupied housing. The first-time homebuyer program was the third recommendation, Ms. Sullivan said.

“The other two recommendations didn’t align well with the legal requirements needed to administer those programs,” Ms. Sullivan said. “The first-time homebuyer program, however, appears to be something we can implement under the current code, which means we can start spending the money now, and that’s the goal.”

Under the latest proposal, eligible households could earn no more than $197,880 annually for one- and two-person households, or $230,860 for households of three or more people, according to a memo from Ms. Sullivan.

Ms. Sullivan is also working with town planners on a new section of town code dedicated to administering community housing programs. That code chapter is expected to go before a Town Board code committee in August.

Officials have not yet said when the first-time homebuyer loan program could be formally approved or launched. Ms. Stevens said she hopes revisions to the proposal will be completed by the end of the summer.

“This is an intelligent, reasoned approach that prioritizes long-term affordability,” Ms. Stevens added. “There is nothing rushed about the criteria or the process being developed here.”

The post Southold homebuyer loan plan faces shortage of homes under $750K appeared first on The Suffolk Times.

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