FEATURE

New opportunities
Modest incomes, big dreams

You gain much by bringing together buyers with state, local, and nonprofit financing programs.

BY LAWRENCE RICHTER QUINN

OK, go ahead and laugh: Take newlyweds with a modest income and little savings for a downpayment, and tell them they can buy a house in one of the most affluent parts of the country—say, in Northern Virginia, just outside the nation’s capital.

Priscilla Falcon isn’t laughing. Over the past five years, the sales associate with Century 21 New Millennium has helped about 50 moderate-income couples find their first home in Arlington, Va. Her experience shows you can make a lucrative and rewarding career guiding first-time buyers into affordable homeownership programs.

Falcon’s efforts have been made possible by a little-known program run by Arlington County called the Moderate Income Purchase Assistance Program, launched several years ago and in 2001 awarded the state’s top housing program prize.

But without enterprising practitioners such as Falcon, the program’s assistance funds would have sat unused. “The major impediment here is making people aware of the programs,” says Yolanda Chavez, lending manager for First Nationwide Mortgage Corp./Cal Fed Lending in Frederick, Md., an affordable-homeownership lender. “A lot of cities and counties don’t have money to promote the programs.”

A national trend
Around the country, programs such as the one in Arlington are multiplying. The reason is simple: Over the past several years, home prices in many parts of the country have surged, making it difficult for even moderate-income households to buy their first home.

States and localities have responded by tapping their own resources and federal funds to launch programs dedicated to helping qualified first-time buyers. Private nonprofit organizations have also been major players in affordable homeownership programs.

Arlington’s program, launched in 1982, is well established. But that’s far from the rule. “A lot of communities are just beginning to delve into this,” says Chavez. “They’re realizing that even middle-income people are having difficulty affording housing.”

That’s a calling card for opportunity, say practitioners who work with these programs. But you need to do your homework—learning what funds are available from whom, what the application process involves, and which buyers qualify.

Unfortunately, there’s no one-stop shop of information, but there are lots of local resources to start with, say practitioners.

Experts estimate that there are as many as 1,000 programs nationwide, but you only need to know about those available in your area. “You can find out about them by calling your local finance agency or your city hall,” says Mark Ulfers, president of the National Association of Local Housing Finance Agencies, Washington, D.C., whose group represents public agencies that administer local housing programs.

Lenders who work with first-time buyers are also a great source of information. “There are many lenders who just don’t deal with this type of financing. You have to know which lenders do,” says Deborah Latham, a past president of the Denver Board of REALTORS^®.

How affordable mortgages work
Programs for first-time buyers generally fit into one of two categories. One is assisting with the downpayment; the other is lowering the interest rate. In many cases, as in Arlington, there are resale restrictions, which discourage assisted purchasers from selling their house for a number of years, typically around seven.

Although program details vary, eligibility is usually restricted to buyers earning between 50 percent and 100 percent of the area median income. In an area where the median household income is $75,000, eligibility would extend to households earning between $37,500 and $75,000.

In certain high-priced areas of California, eligible households in some cases can earn up to $100,000, says Chavez.

The definition of first-time buyer can also differ, but many programs use the definition applied to federal housing programs administered by the U.S. Department of Housing and Urban Development. Under that definition, “first-time buyer” includes any household that hasn’t owned a home before or, in some cases, for the past three years.

Programs also typically include purchase price limits, often a percentage of conventional loan limits set
by Fannie Mae and Freddie Mac. In Alexandria, Va., for example, the purchase price limit on existing homes is $225,000, which is just under 75 percent of the Fannie, Freddie limit of $300,700.

To a certain extent, programs offering low-interest first mortgage financing are a specialty of state housing finance agencies, which use annual allocations of tax-exempt mortgage revenue bond authority or dedicated state funds to generate pools of mortgage money at bargain rates, generally about 1 percent to 2 percent below market rates.

For downpayment assistance, local housing agencies are a prime source. In a typical program, buyers apply for a second loan—usually around $15,000—and either pay a very low interest rate or get a substantial payment deferral, or both.

In some cases, buyers use gifts or loan funds from family or friends to help them generate their required contribution—or they can tap into help from private nonprofit homeownership groups.

In a program offered by the Cape Homeownership Center, part of the Housing Assistance Corp. in Hyannis, Mass., eligible buyers may qualify for up to $5,000 in a zero-interest, deferred loan for downpayment and closing costs.

You bridge the trust gap
Whatever the program, real estate practitioners are integral to ensuring that eligible households benefit, and not just because you’re best positioned as information providers.

Housing specialists say there’s a trust gap that you can bridge between some low- and moderate-income households and the mortgage finance community.

“Many [low-income buyers] look at financial institutions as being potentially threatening,” says Steven Hornburg, a national expert in housing and mortgage policy issues in Arlington, Va.

For potential buyers who’ve come from countries where mortgage financing isn’t readily available, learning about and securing a loan is a daunting challenge.

To help bridge the trust gap, Falcon, the Arlington associate with Century 21, is as much housing counselor as sales rep, she says. She teaches homeownership seminars in both Spanish and English, targeting the area’s Puerto Rican community.

“I try to build trust and confidence with customers at these seminars, speaking in both languages, making them comfortable with the process,” says Falcon.

Second, your expertise in closing deals is particularly crucial for low- and moderate-income buyers, who are at a competitive disadvantage even with their mortgage assistance. It can take several weeks longer to close on the assisted financing than it takes for conventional financing, which can hurt buyers when they’re competing for a house.

Other potential disadvantages are the purchase-price limits and geographic restrictions that many programs impose on borrowers.

Why do it?
Given the amount of homework that’s required and the generally lower average sale price of homes sought by assisted borrowers, why would you take the plunge and work this sector of the market?

For one thing, particularly in high-cost markets, you’ll find that the prospective buyer pool is made up of financially mainstream households representing a potentially sizable portion of the market, says Chavez.

These untapped buyers also represent new entrants to the market. They’ll help expand the overall pool of buyers and eventually move up.

“Practitioners can make deals they otherwise might not,” says Doug Myrick, homeownership program coordinator in Arlington County.

The satisfaction level is also extremely high. “I love to help people get into a house,” says Falcon. “It’s not always about the money. It’s a real joy to see someone realize that dream of becoming a first-time homebuyer.”

RealtorMag Online

Special financing supplement Helping buyers tap affordable financing programs is just one of the issues REALTOR^® Magazine explores in a special mortgage finance supplement to be featured in April and May at RealtorMag Online. The two-month series offers you and your customers information about today’s varied mortgage financing options, as well as updates on credit scoring, housing counseling, and the growing trend of mortgage cross-selling to boost brokerage earnings. At www.realtor.org/realtormag,click on Current Links.