A Helping Hand into Ownership

by Jim Buchta of Star Tribune
Published: November 2004
Section: BUSINESS

A year ago, when mortgage interest rates were at their lowest level in four decades and the market was so hot some sellers could pick their buyer, programs for low-income buyers sat idle and thousands of dollars of assistance went unused.

No longer. Though interest rates still are low, home prices have leaped by double digits. Now more buyers are signing up for programs that offer help paying down payments and closing costs, as well as below-market interest rates.

"Prices are higher and people's wages haven't kept pace with the price of housing," said Kris Wilson of Summit Mortgage in Bloomington, who is helping a growing number of buyers take advantage of those programs. "There's an affordability gap, and they can't amass the amount of money necessary to get into a house. They can handle the payment, but not the downstroke."

In just the past three years, the median sale price in the Twin Cities has increased more than 25 percent to $220,000, making home ownership less attainable for more people. Now is a golden time, however, to take advantage of some of the assistance programs. They're flush with cash and offering terms that are far more appealing than what's offered by most commercial lenders.

Tammy Storjohann, for example, is a recently divorced mother of two who was renting an apartment and wanted to buy a house. But with a tight budget and high home prices, she figured it would take more time and more money.

Then she found a program through the Minnesota Housing Finance Agency that enabled her to give up her subsidized Section 8 apartment and get a low-interest mortgage rate (5.375 percent) and down payment, closing cost and fix-up assistance totaling almost $30,000.

Most of those funds are in the form of a "silent" second mortgage that doesn't have to be paid back until the first mortgage is satisfied or the house is sold. Through that program, known as Homesteps, she also was able to borrow enough money to replace the windows, furnace and deck rail in her $167,500 townhouse in Burnsville.

Her total personal investment in the house was a $2,000 down payment. "I wasn't aware that between me and the assistance that it could be happening so fast," she said. "I'm very pleased."

The MHFA plan is one of several recently revised programs that can be layered with one another to meet the different needs of a variety of buyers.

Another popular one is called CityLiving, a collaboration between the St. Paul Department of Planning and Economic Development and the Minneapolis Community Development Agency. CityLiving offers buyers a grant of up to 4 percent of the total mortgage amount that can be used for the down payment, closing costs and monthly paymentss. Portions of this program are limited to first-time buyers.

During the most heated days of the market, those programs weren't heavily used. When mortgage rates started falling, some of those programs lost their appeal because in some cases the market rate was actually lower. Today, the program's bonds are being issued in commitment lots that can accommodate changes in commercial rates.

Some of the programs fell by the wayside because sellers saw no reason to cooperate. At the MHFA, for example, there was a program that required sellers to pay 2 points to help buy down the interest rate of the mortgage. But with buyers aggressively bidding on houses, many sellers preferred those who came in with clean financing.

"With interest rates being down and lots of demand, you couldn't get sellers to go along with it," Wilson said.

During most of 2003 only two people used the CityLiving program in Minneapolis, said program administrator Mike Anderson.

But since March 2004, more than 100 people in Minneapolis and about the same number in St. Paul have used the program, mostly to help with their down payment.

"That seems to be the biggest need," Anderson said. "Maybe it's the economy, maybe it's just life, but they can't come up with the funds for closing costs and the down payment."

The marketplace is changing too. More single women like Tammy Storjohann as well as immigrants and other minorities are becoming homeowners.

Home buyers' programs are evolving to reflect those changes. Most notably, more are aimed at helping minorities and single women.

The Community Activity Set-Aside Program (CASA), for example, works with participating lenders to target specific housing needs, including new houses in the suburbs aimed at making it easier for low- and moderate-income immigrants and other minorities to own a home in the same community where they work. That program offers the lowest interest rate available through the MHFA's first-time buyer program.

"They provide access to the home buyer market for people who might not otherwise have had access," Wilson said. "The private market isn't doing it for a lot of people, but I clearly see the need for these kinds of programs."