Recently, PartnerOwn had the pleasure of taking part in a six-hour housing counseling seminar on a Saturday with twenty future home buyers. The program was provided by LUCHA. LUCHA is a nonprofit neighborhood housing agency serving the Humboldt Park, West Town and Logan Square neighborhoods in Chicago. PartnerOwn wanted a glimpse at programs like these that have improved a borrower’s ability to stay current on her mortgage and are a great service to the local communities they support.
LUCHA’s seminar covered a wide array of homeownership: from financing the home purchase to monitoring energy usage. We learned a great deal, and we also saw the need for better financing opportunities for borrowers since participants talked through issues of credit scores and down payment needs . We recognize that any new financing arrangement should be flexible enough to provide options for borrowers with different down payment thresholds or credit scores that do not reflect their financial situation.
The day began by enumerating the positive and negative aspects of homeownership. The participants listed many “consumption” based benefits of homeownership, and the instructor suggested that purchasing the home is also an investment towards the end of the brainstorming session.
To acquire financing for their home purchase, all participants were interested in obtaining a mortgage. The instructor provided tips for obtaining and maintaining a good credit score. One participant was surprised that after paying off all of his credit card accounts and closing them, his score could be hurt because it lessened his credit history. It made PartnerOwn wonder if there are better ways to determine a borrower’s ability to pay a mortgage, outside of using a credit score alone? Research has demonstrated how the dependence on credit scores led to lax screening in the most recent housing crisis.
A mortgage lender spoke next about financing options that banks provided to borrowers. It was a great opportunity for participants to learn more. Many banks currently offer down payment assistance programs. The banker also stressed that they did not want to “put borrowers in a position to fail” when making a loan given what has happened in these past five years. Unfortunately, the banker did not discuss the risks that borrowers face, such as house prices decreasing in value or the possibility of being in negative equity. This is surprising given that Zillow estimates that 30% of Chicago homes are still in negative equity.
Juan Linares, LUCHA’s Executive Director and a commercial real estate lawyer spoke next about legal considerations when going through the home purchase process. He emphasized asking for more than the standard five day inspection period to make a decision because it can often be difficult to book an inspector and get the results in the contracted timeframe. His insight was invaluable for all involved.
Next on the docket was a real estate agent. The real estate agent spoke about the commitment one must sign and the small things agents can do to make sure that the purchase goes smoothly. One anecdote was to specify the models of the appliances that would stay in the house since he once had a client end up with a rusty refrigerator that was switched into the home because the contract only specified a refrigerator.
A real estate appraiser and an electrical provider dug into the details of keeping up a home and ensuring that the home you buy is the right one. LUCHA’s team then closed with advice for down payment grant opportunities available through state and federal agencies. Most of the programs took the form of a loan at a higher interest rate than the mortgage itself. While it is enviable to help borrowers overcome the down payment obstacle, it seems doing by encouraging more debt may not be ideal in the long run.
It was a great day for homeownership. And we thank LUCHA for the opportunity to participate. Stay tuned for more updates. PartnerOwn is busy at work creating our financing solution for residential real estate and acquiring the resources to make it a reality.
The PartnerOwn Team