Local Communities Work to Increase Real Estate Affordability
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When Ashley Smith and Robert Heslop first saw their home, they were sure they couldn’t afford it. The two-story house in Fernley, Nev., was $325,000 — $25,000 above their price limit. But thanks to a friend’s recommendation, the Nevada Rural Housing Authority (NRHA) helped them secure $15,300 in down payment assistance.
NRHA’s Home At Last (HAL) program provides qualifying borrowers with counseling and helps them obtain up to $22,655 to cover down payment costs. In return, borrowers agree to stay in their homes for three years. More than 7,400 buyers have taken advantage of the program.
“We never would have been able to get that house” without the HAL program, Smith said. Now, she and Heslop are happily making the house their own, relishing the fact that they make the rules.
“We can customize our house our own way, we don’t have to worry about paying someone else’s [mortgage]. It’s our home,” Smith said. “I can put wind chimes up! At the place we were renting I couldn’t have wind chimes, so the first day we moved in, I slapped my wind chimes up.”
Smith, 21, and Heslop, 23, even adopted a six-year-old Jack Russell terrier named Franny through NRHA’s HAL Pals Pet Adoption Program — every new homeowner has the option to adopt from a local shelter, and NRHA will cover the adoption fee.
“Homeownership is more than just getting keys. It’s the feeling of what home means to you,” said Diane Arvizo, NHRA’s director of homebuyer services programs. “It’s just the idea of owning your own life and being able to do what you want.”
Broadening the path to sustainable homeownership
Programs such as the NRHA and other homebuyer assistance initiatives help first-time buyers navigate the often overwhelming process of applying for a mortgage and purchasing a home. Although homeownership is considered a hallmark of the American dream, many Americans — particularly those with low to moderate incomes — often see buying a property as being hopelessly out of reach. Between coming up with a down payment plus closing costs and fees, the financial challenges may seem insurmountable. Then there are property tax rates and maintenance expenses, which only add to the burden.
As interest rates increase and the housing market continues to tighten, traditional barriers to homeownership could become even more challenging for low-income and minority borrowers. Minority borrowers were disproportionately shut out of the housing market following the financial crisis, thanks to stricter standards surrounding credit scores and credit history, according to the Urban Institute.
The Department of Housing and Urban Development (HUD) has acknowledged that low-income and minority borrowers are often disadvantaged in the housing market. They’re unlikely to have financial assistance from their families, and their income prevents them from saving for a down payment and closing fees; borrowers with lower incomes may have bad credit or limited credit histories as well, further decreasing their chances of qualifying for a mortgage. Many have also often experienced fears of discrimination when it comes to the general homebuying process.
Those fears are well-founded. For much of the 20th century, discriminatory policies kept minority families from homeownership, due to policies such as racial covenants and redlining – restricting financial resources to areas based on the racial makeup of those neighborhoods. The Fair Housing Center of Greater Boston (FHCGB) notes that discriminatory practices continue in that metropolitan area today. According to FHCGB, African-American and Latino renters and buyers see fewer properties and are “steered to other communities” during the home search process. In two-thirds of cases in which renters have Section 8 vouchers or have families, the prospective homeowners experience discrimination.
African-American families in particular are disadvantaged in the housing market. Employment discrimination inhibits wealth-creation opportunities, making it all the more difficult for them to save for down payments and other homeownership expenses. Presumably, this also exacerbates other issues mentioned by HUD, such as not having family financial support or access to credit. The high barriers to good employment and homeownership also mean many black Americans can’t access the same tax benefits as wealthy white homeowners, widening wealth gaps.
But thanks to homebuyer assistance and community development programs, homeownership is more achievable than many people think, including for people who have been excluded from the market in the past. Rashanah Baldwin, a neighborhood coordinator with Neighborhood Housing Services of Chicago, said her goal is to show clients in low-income areas that buying a house is within their grasp.
“NHS’ goal is to show and try to create the American dream of homeownership to individuals who think it’s not possible because they live in a certain neighborhood or are from a certain demographic,” Baldwin said.
Chicago hope. The organization, which also has a lending arm, helps people access financial assistance through its NeighborhoodLIFT initiative and Micro Market Recovery Program (MMRP). Baldwin said she often meets with skepticism from would-be homeowners, particularly those who experienced the worst of the financial recession.
“The market was not there for them,” she said. “Some of them were fearful because there was a lot of predatory lending in our community, so they were very apprehensive. Now they’re starting to see that homeownership is attainable.”
Like the Nevada program, NHS helps borrowers qualify for down payment assistance by providing financial counseling and helping them find lenders willing to work with program participants. In both programs, the money is issued in the form of a forgivable second loan on the property, meaning borrowers don’t have to repay the money as long as they stay in the home for a specified period of time. NHS’ NeighborhoodLIFT and MMRP programs carry a five-year owner-occupancy requirement, with the loans forgiven at 20 percent each year until the requirement is met. The goal is to motivate people to invest in their communities, rather than using the assistance to buy and flip the houses.
Shared equity programs.
Down payment assistance isn’t the only option available to would-be homeowners, however. Shared equity programs offer ways to lower total loan amounts by selling a portion of the equity to a lender. The borrower will have a lower down payment and smaller monthly mortgage bills, and the lender will collect a portion of the profits when the borrower eventually sells the home.
Community stabilization through home ownership
According to Baldwin, NHS sees homeownership as a path toward stabilizing and preserving communities that have struggled economically. Incentivizing people to buy vacant homes and take a stake in a neighborhood’s future can be a game-changer in places that are often neglected and overlooked.
From her perspective, homeownership is part of a virtuous circle. The more people who own homes in an area, the more taxes will be generated, and those taxes can be used to fund better schools. More property owners also attracts businesses, further growing the local economy. All of these elements make people want to stay in an area and ensure that their community thrives.
“Parents aren’t moving once they know there’s a good school [system]. A good school system is driven by homeownership, and houses, and occupied homes,” Baldwin said. “The economy is driven by residents living in that neighborhood. They essentially all work together.”
Help in Houston. Fifth Ward Community Redevelopment Corporation (FWCRC) in Houston takes a similar view to getting people to invest in the communities where they live. The HUD-approved agency provides counseling and assistance to first-time homeowners. Courses organized by FWCRC and certified by HUD help borrowers get certified to apply for down payment grants and other mortgage assistance programs.
Sandylane Oquendo, a housing counselor with FWCRC, said the courses prepare borrowers not just for the financial responsibilities of buying a home but to choose a place where they’re likely to engage with their communities.
“You have to like the community that you live in. If you really like the area where you live, you’re going to be a more effective homeowner because you’re going to have that sense of pride,” Oquendo said.
In Nevada, Arvizo sees many long-time renters choosing to become homebuyers as they’re priced out of their current areas. With companies like Tesla and Switch operating out of the state, local residents in areas such as Sparks (where Tesla is located) found that rent prices were going up faster than income levels. To cope, Arvizo said they’re moving further outside cities and using homeownership as a means of regaining control and establishing stability in affordable communities.
“They’re moving out of their rentals and wanting to buy a home and plant some roots so that they don’t get relocated for circumstances that have been beyond their control,” she said.
A long-term impact
The sense of pride and investment in a community extends beyond the initial rush of buying a house. That’s why these and other programs offer ongoing support and counseling to help people stay in their homes and modify them as time goes on.
Loan and grant programs for weatherization projects and energy efficiency can help new and existing homeowners maintain their properties and update them to meet their needs. The Department of Energy’s Weatherization Assistance Program provides funding for low-income residents to upgrade their homes and reduce their energy bills, thus making long-term homeownership more affordable. Current homeowners can also apply for Federal Housing Administration-backed loans to renovate their properties and can use the funds to increase energy efficiency and repair potentially costly issues, such as leaking roofs and structural issues. In addition, there are state and local level programs as well to find funding for energy-efficiency upgrades for people in need.
The ability to renovate or modify a house can also boost owners’ overall financial stability, because as their home values increase, so does their net worth. The emphasis among many programs is long-term planning and strategizing.
“Basically, the motto of NHS is, we help individuals buy your home, fix your home, and keep your home,” Baldwin said.
Qualifying for assistance
Down payment assistance programs exist nationwide at the state, county, and city levels, and the qualifying criteria vary by organization and geography. The resources available extend beyond financial assistance as well, and homebuyer assistance and community development programs often partner with lenders to offer different loan products. In many cases, qualifying for down payment assistance involves taking homeownership courses and speaking with a counselor.
According to Baldwin, all borrowers who use NHS’ NeighborhoodLift program must complete an eight-hour course to ensure that they can afford the payments on the home, including mortgage installments, taxes, and other expenses. She also noted that NHS does follow-up counseling after the purchase to educate participants about their ongoing obligations and to help them with issues around home maintenance and weatherization.
Not everyone is eligible for funding through these types of programs — each carries its own requirements, including minimum credit thresholds and maximum income amounts. For instance, NRHA’s HAL program requires a minimum credit score of 640 and a maximum income of $135,000.
In Houston, buyers who want to purchase within the city limits must have a 620 credit score. Those who earn below 70 percent of the area median income (AMI) can qualify for a $25,000 down payment assistance grant; borrowers who earn between 70% and 80% below AMI may qualify for $15,000 in assistance. However, the qualifying requirements change based on where a person wants to buy and what program they choose.
The holistic approach to homeownership
Sometimes the assistance buyers need isn’t about financing — at least not yet. Oquendo said that when prospective borrowers begin credit counseling, they begin to see their circumstances more clearly and may realize they’re not ready to buy yet. They may need to bolster their credit by paying down debt or building up their credit history. She said she often sees people come in with unrealistic expectations about what they’ll qualify for based on credit score alone. By educating them on the full spectrum of what lenders look for when assessing borrowers, FWCRC improves their chances of approval when the time is right.
The organization also helps them reduce the risk of default and foreclosure by helping them understand how their budgets may change. Someone who rents a one-bedroom, one-bathroom apartment will need to account for an increased water bill when they move into a house with two or more bathrooms. Anticipating such changes makes homeowners more resilient in the face of their changing responsibilities.
It’s that type of preparedness that can make all the difference for homeowners, particularly those who may feel that the odds have been stacked against them. Learning how to improve their credit, manage their finances, and affordably buy a home can help them plant roots not only for their families but for their communities as well.