by Ward Lowe There are almost as many affordable-housing programs as definitions of the term affordable. Whether your clients need help covering the downpayment on a $300,000 residence or qualifying for a loan on a $75,000 house, a program probably exists that can assist them.
While affordable-housing initiatives were created for those consumers with low and moderate incomes, not every potential homebuyer eligible for assistance programs has huge debt or bad credit. Many gainfully employed first-time homebuyers can qualify for low-interest loans and downpayment assistance.
"When people talk about affordable housing, they think it’s dealing only with minorities or the down-and-out, but the only thing it’s really about is money," says Shad Bogany, broker/owner of ERA Bogany Properties in Houston and member of the TAR Affordable Housing Task Force. All kinds of people use affordable-housing programs, according to Bogany. The thing they all have in common is the need for financial assistance to purchase a home.
Many of those struggling to buy a home are hardworking people priced out of their cities and towns, says NAR 2003 President Cathy Whatley. She found this to be a recurring theme in her nationwide travels as an officer of the association. To help combat this problem, Whatley in January issued a challenge to all REALTOR® organizations and their members to expand Americans’ housing choices, especially for low- and moderate-income consumers.
A stepping stone to larger homes
Even if you don’t see consumers who qualify for affordable-housing programs every day, Frankie Jefferson, broker/owner of Jefferson Investments in Houston, insists it benefits the entire industry if you know about the programs and other agents who are familiar with them.
"Don’t break a consumer’s spirit," says Jefferson, a member of the TAR Affordable Housing Task Force. "Don’t send potential clients out the door thinking they’re not capable of buying anything, when they are. Refer them to another agent."
Every agent knows how good it feels to watch someone close on a home, especially someone who never thought it was possible; that’s one reason why you got into this business. Combine that feeling with the realization that affordable housing represents a fast-growing segment of the real estate industry–a segment that can generate significant income.
"There’s only so many people who can buy a $1 million property, but there’s a whole lot of people who can buy an $80,000 house," contends Bogany. "It’s our mission to get people in housing. It’s a great way to improve this country. When people own their own houses, versus rent, they have stock in where they live. That builds stronger neighborhoods."
"We have to all know about these programs and help people get in that first house," says Tom Gann, president of Gann Medford Real Estate in Lufkin, also a member of the TAR Affordable Housing Task Force. "That’s the consumer’s stepping stone to bigger houses. And if we’re going to promote homeownership, we have to start with anyone being able to buy a house–an affordable house."
Clearing the hurdle
"The single greatest hurdle to first-time homeownership is a high downpayment requirement that can put a home out of reach," President Bush announced last year in a national radio address. Seeking to get buyers past that obstacle, about a dozen nonprofit organizations in 2002 formed the Homeownership Alliance of Downpayment Providers (HAND).
Many Americans have been taking advantage of this new type of affordable-housing initiative. Nehemiah Corporation founder Don Harris in October estimated that 15,000 buyers use his or another HAND program each month, and that number is steadily growing. What attracts consumers to these programs is the promise of a no-strings-attached monetary gift to cover their closing costs and downpayment.
Homebuyers who meet FHA qualifications for mortgages but lack the cash necessary for a downpayment or closing costs can receive gifts from a pool of money previously raised by each program. The amount of the gift varies by organization. Some cap the downpayment gifts at a percentage of the sales price, such as 6%, while others set a flat dollar amount like $10,000.
The party who makes the deal–and these programs–possible is the homeseller, who must agree to participate in one of the HAND programs. Participation entails making a contribution to the organization’s pool of funds of an amount equal to the gift given the homebuyer plus a service fee, which can be a flat fee of a few hundred dollars or a percentage of the eventual sales price, such as 0.5%.
The advantages for homebuyers of this arrangement are obvious, but why would a seller want to, in essence, pay for a buyer’s downpayment? Proponents of these programs say that homes sold through these organizations sell quickly and often at full asking price. They contend the seller would, in the course of typical negotiations, make a price concession roughly equal to the required contribution and spend more time trying to sell his house.
That’s all well and good, says Bogany, but what happens in a seller’s market? "In an up market, what seller is going to pay the buyer’s closing costs? What happens is the seller needs to raise the price in order to pay for the fees."
Other critics echo Bogany’s concern that prices may inflate beyond true market value. If the homebuyer turns around in a few years and sells, he may find himself owing more on the mortgage than the house is worth.
Jefferson says the programs can be useful, but advises using caution. "I think gift programs are a good idea, but agents need to know all the fine print associated with them."
Making earnest money work
Adding new affordable-housing initiatives like downpayment gifts is fine, says Bogany, but Texas already has a wide array of programs. "We’re very fortunate in Texas with all the programs we have. To me, the challenge is getting REALTORS® to understand what’s already out there." And with budget crises looming on all levels of government, funding those programs proves more of a test.
State REALTOR® associations in Utah and Colorado are trying to raise money for affordable-housing programs with every real estate transaction. These associations, in cooperation with their state governments and real estate commissions, enabled brokerages to convert their real estate trust accounts to federal-tax-exempt, interest-bearing accounts. Agents, with their clients’ permission, deposit clients’ earnest money in these accounts. The bank periodically sweeps the interest and forwards the money to housing-opportunity funds established by the state REALTOR® associations.
The housing-opportunity funds support approved housing programs that apply for grants. These programs include charitable organizations recognized by the IRS, government agencies, housing authorities, and other agencies that conduct activities consistent with the grant program, such as those helping the homeless, first-time homebuyers, or eviction-threatened families.
The funds track where the interest contributions originate and disperse the money accordingly. A fund typically releases about 70%-80% of the interest collected to local programs that benefit the areas where the money came from, with the balance going to statewide or regional programs and the administration of the fund.
You may not think the few dollars earned while money sits in escrow would amount to much, but the Colorado association collects $300,000-$500,000 annually to fund affordable housing. And their association has only 20,000 members–less than half of TAR’s membership.
Where to begin?
You won’t find too many agents who think affordable-housing programs are a bad idea. But you also won’t find too many agents who know about many affordable-housing programs. The challenge of housing the citizens of Texas starts with the challenge of informing agents about the programs available for their clients.
Ask any agent familiar with affordable-housing initiatives how they got that knowledge and they’ll probably tell you it comes from experience. Jefferson, who estimates 75% of her clients use such programs, several times a year learns about new programs from consumers who approach her about buying a home.
Jefferson advises a good way to get started learning about programs is to listen to consumers who present a less-than-perfect financial situation. Whether you add them to your client list or refer them to another agent who can better assist them, gathering specific financial information will make it easier to match them with an affordable-housing plan and provide you with an example of the types of financial challenges many buyers face.
"Call up the big banks that serve the entire state," says Bogany. "Call Fannie Mae. Call FHA. Ask them what they can do for your buyer." He notes that major lenders have programs for various consumer situations and literature on each one to help you familiarize yourself with the process. Many local programs exist, but may not cover every area where you sell houses.
In an attempt to gather program information in one place, NAR recently launched the Housing Opportunity Program Web site. A quick search on Texas homebuyer programs yielded only the first-time homebuyer program sponsored by the Texas Department of Housing and Community Affairs, but many national initiatives are listed. NAR accepts submissions to the site and promises the site will continue to evolve and include more programs.
"The more information we put out there for consumers and agents, the better it is for our organization," says Jefferson. "We can tell consumers that the information is out there and we’re trying to help."
Even when you find a program, getting through the paperwork frustrates some agents. Gann says, "The people that deal with low-income programs all the time don’t think they’re much hassle. But you get someone who doesn’t do them–the first time they look at it, they throw up their hands and say it’s too much trouble."
Five referrals instead of one
It may take extra effort at first to learn the ins and outs of affordable-housing programs, but the potential payoff in increased business is worth it. Jefferson uses the programs as a tool to make deals. "Agents need to search for all the tools they need to make deals happen. These programs are another tool in the marketplace that I can use."
And your clients who do use these programs will remember you and probably need your services again, Gann says. "That same person sells that first house and buys a larger one, and sells that one and buys a larger one, and sells that one and buys a larger one. You’ve started them on the housing ladder."
Although selling one high-end home may generate the same commission as five low-priced homes, the potential business from the smaller deals is significantly more. "That’s five people who are singing my praises, telling five times as many people that I’ve put them in a house," Bogany says.
"And the buyers on the affordable side are so thankful and grateful to own a house that they tell everyone they know, ‘I did it, you can too.’ And those people want to know who helped them get into their house."
You can’t ask for better advertising than that.
Photo © PictureQuest.
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