Opening doors for new home owners

July 31, 2006
By Aimee Blanchette, Star Tribune

For some, the key to homeownership is finding the right mortgage program.

With home prices climbing and interest rates also on the rise, buying a house isn't getting any easier. Here's a look at how a raft of special mortgage programs helped three low- to moderate-income, first-time and minority home buyers who otherwise might have been shut out of the market.

JER YANG AND GAOSHENG THAO

Woodbury

When shopping for a mortgage, Yang and Thao said several lenders recommended a somewhat risky interest-only mortgage. The couple sensed there was something better for them. Kris Wilson at Summit Mortgage suggested the Community Activity Set Aside (CASA) program, which offers long-term, fixed-rate mortgages with closing cost assistance. They hope to spend about $200,000 on a house.

House price: $200,000.

Mortgage amount: $199,500.

Term: 40 years at 6.5 percent, slightly below the market rate.

Cash needed: $3,300.

Assistance: $3,000 (Homeownership Assistance Fund [HAF] loan applies to closing costs and monthly payment assistance). The couple make too much to qualify for American Dream Downpayment Initiative (ADDI).

Total monthly payment : $1,540.

Without assistance, Yang and Thao's buying power would have decreased by about $10,000, plus they would have needed about $3,000 more of their own cash.

Help Finding a Lender

Many assistance programs can be combined or layered to provide greater opportunity for the borrower to purchase a home. Kris Wilson at Summit Mortgage says layering products is difficult, which is why not all lenders are willing or able to offer them. "You need a full-service lender who knows what they are doing - someone who is committed to affordable and emerging markets products," she said. "It's a patchwork quit and what you need is a good seamstress."

LendersWhoCare.org has a directory of mortgage lenders who are knowledgeable about emerging markets lending progrqms, as well as information on loan dprograms in Minnesota.

To find a lender who offers CASA loans in your community, visit www.mhfa.state.mn.us/homes/CASA.htm or call 651-296-8215.

To find a lender who offers CityLiving loans in your community, visit http://stpaul.gov/depts/ped/cityliving/lenders.pdf or call 612-673-5282 (Minneapolis) or 651-255-6626.

LISA HAUCK

Prior Lake

After several renting situations gone bad, one forcing her to live in her car for a month, Hauck was committed to never dealing with a landlord again. Hauck, her 15-year-old son and their dog are enjoying their twin home with two porches and a fireplace near a lake and nature preserve. She recently landscaped the front yard and installed a pond. "The opportunities were there, and I ran with them," Hauck said. "There are lots of opportunities for people, but like me at one point, they don't know that it's possible."

House price: $138,000.

Mortgage amount: $121,290.

Term: 30 years at 5.25 percent through the Federal Housing Administration (FHA). The mortgage was administered through a special demonstration program by the Minnesota Housing Finance Agency, which contributed most of the FHA-required 3 percent investment by the borrower. That program no longer exists, but the CASA program is similar.

Cash needed: $1,500.

Assistance: A zero-interest $21,000 deferred loan for down payment and closing costs.

Total monthly payment: $869.

It would have been impossible for Hauck to buy a home, because she lacked sufficient credit. FHA, however, allowed alternative forms of credit, such as utility and cell phone payments, to prove a good payment record over the past 12 months. Plus, she didn't have to make the $4,140 investment required by FHA. Chatanya Miller

Brooklyn Park

Chatanya Miller and her 3-year-old son moved into their first home two weeks ago. She's always been a saver, so coming up with a small part of the down payment wasn't a problem, but it would have taken her a long time to come up with the standard 20 percent down. Instead, she needed only $500.

"Owning a home gives me more freedom to make choices and do what I want to do, plus I'm building equity," Miller said. "And I like the sense of responsibility and pride in owning my own home."

House price: $153,900.

Mortgage amount: $139,900.

Term: 40 years at 6.375 percent, slightly below the market rate.

Cash needed: $500.

Assistance: $14,800 ($10,000 [ADDI], $3,000 entry cost assistance from the [HAF] and some monthly payment assistance).

Total monthly payment : $923.

Had Miller sought a traditional 30-year mortgage at the market interest rate, her monthly payment would have been $1,177 and she would have needed $3,850 of her own cash.