Alarming headlines in Connecticut newspapers, magazines, housing advocacy newsletters, and lender publications have all taken turns promulgating the woes of the housing affordability crisis confronting residents throughout the state. In May 2006, the Partnership for Strong Communities (an organization conducting research, providing education, and proposing solutions for housing policy) launched a new HOMEConnecticut campaign that will explore the issues impacting housing affordability in Connecticut and propose innovative solutions that may help to alleviate some of the problems.
Current research shows housing costs in Connecticut increased by 63.6% between 2000 and 2005, with a dramatic increase in the housing median sales prices in the state. In the second quarter of 2005, the U.S. median sales price was $208,500, while the Connecticut median sales price was significantly higher (at $328,800). If you were interested in purchasing a property in Fairfield County, the median sales price was even higher (at $549,600).
Potential first-time homebuyers and residents with low and moderate incomes are particularly challenged by this dilemma. Staking a claim to the American dream of homeownership once again appears more illusive than ever. Yet for these borrowers, there is a flickering beacon of hope in the form of Downpayment Assistance Programs (DAP) for eligible and qualified candidates.
In general, there are three types of DAP programs available: loan-to-grant, grant-to-loan, and discounted second-mortgage loans.
1. In a loan-to-grant program, DAP’s financing is available with an interest-free loan secured by a second mortgage on the property and forgiven over a specified period of time. For example, utilizing funds provided by the U.S. Department of Housing and Urban Development (HUD) in April 2005, Governor Rell announced the American Dream Downpayment Initiative (ADDI) program that is being administered by the State Department of Economic and Community Development (DECD). The ADDI program provides up to 6% of the purchase price of the home, or $10,000—whichever is greater, to qualified buyers. Additional assistance of up to $15,000 or more is available when needed to make the home purchase more affordable for the buyer. The loan is forgiven over a five- to10-year period, depending on the amount of assistance provided. There are regional, income, and sales price restrictions associated with the program. DECD has partnered with several nonprofit housing agencies to implement the program throughout the state.
Additional Information on ADDI Programs
Fairfield County: Housing Development Fund, 203-969-1830
Hartford County: Urban Suburban Affordables, 860-527-9860
New London County: House New London, 860-447-8011 ext. 15
New Haven and Waterbury areas: Neighborhood Housing Services (NHS) of CT
New Haven NHS, 203-562-0598; Waterbury NHS, 203-753-1896
2. Grant-to-loan Downpayment Assistance Programs (DAP) financing is significantly different from loan-to-grant programs. Grant-to-loan financing is usually structured utilizing an interest-free loan that is secured by a second mortgage on the property that is due and payable upon sale of the property, transfer of the title, or payoff of the first mortgage loan. In Fairfield County, the Housing Develop Fund (HDF) administers an Adopt A House Loan product that provides downpayment and closing cost assistance of up to $10,000 through an interest-free loan secured by a subordinate mortgage on the property that is due and payable as described above. For more information on the HDF Adopt A House Loan product, call 203-969-1830.
3. With discounted second-mortgage DAP financing, second-mortgage loans are provided that usually have a set interest rate that may or may not be reduced and is amortized concurrent with the first mortgage loan, usually for terms of 20 to 30 years. The Connecticut Housing and Finance Authority (CHFA) offers a DAP program where the financing is secured by a second mortgage on the home at the same interest rate as the regular CHFA home buyer mortgages loan product. (Note: The regular CHFA home buyer mortgage loan interest rate is generally discounted when compared to local lender market rates and loan rates promoted by mortgage brokers.) Additionally, special CHFA DAP loans are available at an interest rate of 1% to some income-eligible borrowers under the Homeownership Program (for residents of public and subsidized housing). Visit the CHFA website at www.chfa.org for more information on the CHFA DAP program and for a list of approved lenders that are authorized to originate the CHFA mortgage loan product.
Most DAP programs have strict eligibility criteria including income and sales price restrictions, because they are targeted at first-time home buyers who need help bridging the affordability gap for home purchases. (Additional restrictions may also apply depending on the program.) While these programs alone will not eradicate the many challenges of affordable housing that face our communities, they do help by providing some alternative financing options for people who otherwise would be locked out of the home purchasing market under the current conditions. Many of the DAP programs are administered by nonprofit agencies like the Housing Development Fund (HDF), Neighborhood Housing Services Organizations (NHS), Mutual Housing Associations (MHA), state and local DECD (Department of Economic and Community Development) offices, and faith-based initiatives, like the Christian Activities Council’s Urban Suburban Affordable Program. Some financial institutions and banks offer special affordable lending mortgage loan products for first-time home buyers that may also include down payment assistance options for qualified borrowers. To find out more about DAP programs and for appropriate referrals, contact any of the agencies listed above or a local lender in your area.
While the housing affordability crisis looms over the state, housing advocates concerned with the issues of chronic homelessness and affordable housing continue to look for innovative ways to address the problem. DAP is one of those ways that is available now and provides for a DAP-to-DAP experience: Dreams Approved Partnership (DAP) through Downpayment Assistance Programs (DAP).
Valencia Taft-Jackson is vice-president of the Affordable Lending Group at People’s Bank and a member of the Connecticut Mortgage Bankers Association, Inc.