Partners (Spring 1999)
Partners (Spring 1999)
HOME BUYERS ASSISTANCE FOUNDATION by Keenan Conigland
From time to time, Partners features a program that offers something different. This program caught our eye for two reasons. First, the Home Buyers Assistance Foundation program employs no federal or government dollars to provide down payment assistance. Second, the program represents a win-win arrangement for the donors and recipients. The builders and/or suppliers that contribute to the program can expand their market share by providing a way for otherwise ineligible buyers to purchase their products. At the same time, the recipients are afforded the opportunity to buy homes that would have been out of their financial reach. This program gives some insight into the way mutually beneficial private sector partnerships can be created.Through an innovative process using tax-exempt contributions from the residential construction industry and funding commitments from various financial institutions, many prospective low- to moderate-income homebuyers in Georgia can now get down payment funds from the Home Buyers Assistance Foundation (HBAF). By helping to open the doors to home ownership, HBAF and its team of member builders, have established themselves as an innovative agent in the home ownership arena. The Georgia-based non-profit offers qualified first-time homebuyers up to five percent of the purchase price of a new home as well as counseling and education services at no cost to the consumer. This is made possible by a grant that satisfies part of the down payment and other costs typically not covered in the first mortgage financing.
Founded in 1995, the program is designed to benefit first time homebuyers, displaced spouses and/or single parents. The grant is to supplement 95 percent loan-to-value first mortgages such as FHA loans, Fannie Mae home purchasing products, and other private and conventional loans. Down payment assistance funds are dispersed as self-liquidating 15-year grants at zero interest. While there is no repayment of the loan, should the home be rented, refinanced, or sold before the 15 year expiration date, HBAF must be reimbursed for the balance. Under certain conditions, HBAF may forgive the grant amounts.
While lenient, the program does contain some stipulations. Participants must meet the following criteria:
- First-time homebuyer (cannot have owned a home within the past three years)
- Applicant's total annual income must not exceed 115 percent of local MSA median income or $68,885 per house hold (individual or couple)
- U.S. citizenship required
- Maximum mortgage amount of $123,400 or local FHA loan limit, whichever is higher
- No more than $20,000 in liquid assets (IRA's, Stock, Bonds, etc.) and/or $5,000 in cash
- Must reside in the home
- Attend education and counseling workshop
- Home purchases through approved lenders only
One of the more attractive features of the program is HBAF's relatively simple approach. To get started, prospective homebuyers must complete a seminar on all aspects of the home buying process and the responsibilities of home ownership. HBAF offers two seminars each month for approximately 40 to 200 prospective homebuyers. Participants with good credit are referred to participating builders to begin the home buying process. One-to-one counseling is available to participants with past credit problems in an effort to prepare them for entry into the home buying market at a later date.
After completing the seminar and a short, confidential questionnaire, participants are pre-qualified through approved lenders to determine how much they can afford to spend on a new home. Armed with this information, the homebuyer, in conjunction with a realtor, can locate and place a contract on a home.
HBAF has creatively expanded the pool of candidates who can qualify for down payment assistance. "Typically, only those parties whose income falls below 80 percent of median income tend to receive down payment assistance. "We realized, however, that there was a substantial market of potential homebuyers who needed help but fell between the 80 and 115 percent median income range," explains Michael Adamson, executive director and founder of HBAF. Buck Denton, Branch Manager, Chase Manhattan Mortgage, agrees. "By providing this service for people who otherwise would not be able to purchase a home, HBAF has helped to create a new market that is both profitable and underserved," Denton says.
The foundation makes the program affordable by setting low down payment requirements. The amount of an HBAF grant used for down payment depends on the home-buyer's financial condition and the type of loan utilized to complete the transaction. For example, homebuyers in the 80 percent median income range are required to make a one percent down payment; a two percent down payment is required at the 100 percent median income level; and at the 115 percent median income level, a three percent down payment is required. "This financial arrangement makes it possible for us to serve a very significant market that usually does not meet the criteria set forth by existing programs but still has a great need for a quality assistance program," explains Adamson, a former mortgage banker with considerable real estate experience.
CapacityHBAF has the demonstrated capacity and experience to serve prospective buyers in the low- to moderate-income markets in their quest for homeownership. In addition to its board of directors of experienced professionals in the new home construction, real estate, and mortgage lending industries, the non-profit has been approved as a down-payment assistance provider by HUD, FHA, Fannie Mae, and Freddie Mac.
The process is not always an easy one. "Finding affordable, single family detached housing projects is often difficult because of land costs. So we started building our own homes," Adamson offers. So far, the foundation has built homes in south Dekalb County, an Atlanta suburb. As the owner of properties throughout metro Atlanta, HBAF has been able to direct money back into its operation from the sale of homes; it is now virtually self-sustaining. "We've sold 45 houses since November of 1998 and we will be delivering another 130 homes later this year," offers Adamson.
The Purchasing Process"We offer more than down payment assistance and counseling. It's really hard to quantify the trust factor we have with the purchaser during the home-buying process," explains Adamson. "As a third party non-profit that is not tied to a municipality, bank, or builder, we are able to gain the buyer's confidence and thereby facilitate the purchasing process."
Once a prospective buyer has successfully completed HBAF's home buying workshop, they are strongly encouraged to secure the services of an experienced real estate agent that specializes in working with first-time home buyers. Agents can be helpful in identifying appropriate neighborhoods and homes and are often effective as facilitators between the lender and the buyer.
Lenders as PartnersHBAF does not take applications for down payment assistance directly from potential homebuyers. Rather, it only accepts applications from approved lending partners, such as Sun America Mortgage and Chase Manhattan Mortgage, on behalf of the homebuyer. The lender, and in some cases HBAF, underwrites the down payment assistance grant and determines the size of the award, usually within 48 hours. Parties affiliated with the transaction, including the lender, builder, or real estate agent, are not eligible to receive or charge additional fees of any kind. Furthermore, closing and financing costs cannot exceed the aggregate total of items associated with the transaction; this would include title insurance and examination, attorney's fees, credit and termite reports, surveys, mortgage insurance, and other items, including the origination fee of one percent of the first mortgage loan amount.
In addition to contributing to community development and capitalizing on a profitable market, lenders may also be able to enhance their Community Reinvestment Act (CRA) compliance programs by serving low-to-moderate income home buyers.
Building with BuildersWhile builders can make contributions to the Foundation, there is no connection between the use of the Foundation's Funds and a contribution. However, HBAF assistance can only be used for new construction and with "pre-approved" builders that HBAF investigates to ensure they are in good standing with HUD, the Better Business Bureau, the Governor's Office of Consumer Affairs, and the local Home Builders Association. This precaution is designed to protect the purchaser in their dealings with the builder. Builders wanting to be approved to participate in the program must submit a completed application and a fee of $295 to HBAF. Builders are usually contacted by HBAF with a decision within a few business days.
Builders are able to sell more homes by tapping a sizable market of potential homeowners through HBAF; they can even advertise new homes at one percent down. However, HBAF does not recommend specific builders to prospective homebuyers. "We usually ask them where they want to live. If they mention a subdivision that uses any of our member builders, we do ask them and encourage the homebuyer to contact the foundation if they decide to use our services," says Rebecca Wallace, HBAF's managing director. The foundation offers builders innovative lending products, relationships with new lenders, pre-negotiated closing costs, and IRS approved dollar for dollar tax benefits for their donations to the fund. These donations are placed in HBAF's general grant account and are dispersed as needed per closing.
Eligible properties for sale by builders must be one-to four-unit single family dwelling(s) (attached or detached) designed for residential use. Dwellings must meet minimum property standards at the time of occupancy and must have warranties from both HUD and the builder.
On the MoveHBAF has delivered its products and services in a diversity of markets ranging from the Atlanta Empowerment Zone to middle-class suburbs. The organization is now expanding to out-of-state markets. "We have had various lenders and builders to invite us into their markets, including Alabama, Tennessee, and North Carolina… I'm just fortunate to be in the position to give something back by taking this program to places and people who need it," says Adamson.
Builders, lenders, and prospective homebuyers interested in the program should contact:
Home Buyers Assistance Foundation
4064-B Nine McFarland Drive
Alpharetta, Georgia 30004
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