City launches new mortgage aid program

 

The city of Chicago is getting back into the home-mortgage assistance business and, though the program is starting small, officials are promising it will grow quickly.

Under the new Home Buyer Assistance Program being unveiled today, low- and moderate-income buyers will be entitled to grants of up to $12,000 to put toward a down payment and closing costs. Exactly how much they get will depend on the buyer’s income and the purchase price.

Initially, the program will be staked only with $1 million in seed capital. But Carole Brown, the city’s chief financial officer, says she expects it to ramp up quickly and eventually rival a somewhat similar program in the late 1990s that helped finance 1,700 purchases a year with $1 billion in aid.

Here are details of the program, which Mayor Rahm Emanuel said will provide “an essential building block for vibrant communities”:

Buyers with incomes of up to 160 percent of the area median income—$106,400 a year, in the case of a family of four—will be eligible for a grant of up to 5 percent of the total amount they’re borrowing. How much will depend not only on income and purchase price, but also whether the buyer uses an FHA-insured loan or one backed by two other federal agencies, Fannie Mae and Freddie Mac.

With the average Chicago single-family home now selling for $250,000, that means the grant could total $12,000. Both first-time and repeat buyers will be eligible, but the former will have to complete a homebuyer education course.

There will be an anti-flipping clause, meaning buyers have to hold onto the property for at least five years.

The program will be administered by Emanuel’s Chicago Infrastructure Trust, which will work with authorized lending institutions to accept and process applications. The city is promising a series of public workshops this spring and summer to get out information.

At an average grant of, say, $10,000, $1 million obviously won’t go far, funding only 100 or so purchases. But Brown said the city’s cash pool will grow quickly because it will be financed not by city bonds, which was the case 20 years ago, but via a small fee on the mortgages of the participants.

“It will take a couple of years to bulk up,” she said. “If it needs more seed capital, we’ll put in more. But I don’t think we will need to.”

The $1 million came from funds left over from the older bond program, Brown said.

Most of the city’s housing programs traditionally go to developers to lower their prices, rather than directly to buyers. But there have been exceptions, such as a Chicago Housing Authority program that allows some rental voucher holders to use their voucher to pay a mortgage, rather than rent.

(Source: Crain’s Chicago)