By Dylan Hall, PartnerOwn Team Member
These past two weeks, PartnerOwn has continued researching how homeowners pay for housing and the issues that they come across. Needing to speak to a lot of homeowners, we decided to speak with people who speak with a lot of homeowners. The United States Department of Housing and Urban Development has certified counselors who provide free counseling services to prospective and current homeowners. We met with counselors throughout the city of Chicago.
Our takeaways from the interviews are that there are populations who could benefit from a “high touch” partnership in owning a home that deals with both financial and maintenance concerns. Also, providing financing alternatives for people who meet income thresholds but have low credit scores from a lack of credit history or use can be valuable as well. Finally, creating a network of homeowners can be a valuable way to address issues that are common to all, such as property tax changes.
All housing counselors offer workshops in purchasing a home. They described the problems their clients face in the following order:
1) Education – understanding what it means to own a home, setting realistic affordability expectations, establishing a budget
2) Credit scores – need to build up a better credit history or cover past due bills.
3) Down payment/Earnest money – having saved enough money to purchase
4) Employment history – need to establish longer employment history even though they have sufficient income
Most of these agencies tend to work with low middle-income and immigrant populations. Yet, there is variation within these communities. For example, in Chinatown, foreclosures are fairly rare and most work is done around translation and understanding the home purchase process. People use a strong family support network to help in meeting their obligations, prefer to take out 15 year mortgages due to lower interest payments and prepay as soon as possible. They view housing as an investment, one that is the most trustworthy. As soon as they pay off their first house, they look for their second to begin renting out.
Other immigrant populations and lower middle-income have a different perception. The consumption aspects of housing play a bigger role and the 30 year mortgages are more common. Month to month affordability is a bigger concern, and the American Dream of homeownership, of being in control and creating their own living space, and passing down something to their children motivates the purchase.
Lower middle-income populations may need budget counseling and to acquire a better understanding of the costs associated with homeownership. Most counselors cite a need of consistency, of not just getting someone into the home but working with them on their budget and the other aspects of homeownership once they move into their house. As a result, a more “high touch” service that provides financial and maintenance consultation could be valuable instead of letting people go on their own once they receive their mortgage.
Immigrant populations are also subject to realities of a lack of history in the United States. While monthly income may be high, their shorter employment and credit history create difficulty in accessing mortgage financing. Counselors can usually recommend processes to build up their credit score. Employment history is more difficult to establish, and can be a problem even if someone has a good paying, stable job currently. Thus, providing financing options for people who find themselves in this situation is important.
Downpayment assistance programs are fairly common and require the completion of HUD counseling. This can reduce the downpayment burdens for some. These may not be permanent though going forward, as many were created from the government settlements against mortgage providers or make use of taxpayer funding.
Property taxes can be a hidden aspect of homeownership for many in the Chicagoland area. Recently, property taxes increased, and most homeowners were caught off guard by their increase in monthly payments, especially since these taxes are built in as payments. Particularly in Chinatown, people sought out advice on getting their home reappraised.
A homeownership partnership should be able to provide information on all costs related to homeownership and act as an adviser for homeowners. Also, homeowners frequently find themselves subject to considerations like these, and as independent homeowners, may not be able to tap into any sort of collective voice if their local housing counseling agency is not as strong as those that we were able to meet with. There could be value in creating a network of homeowners due to the complexity of homeownership in America.