A new homeownership program will be available to modest- and middle-income families and individuals in the Baltimore area. The program, which begins Jan. 1, will roll purchase and repair costs into one mortgage with a down payment as low as 5 percent.
The Community Home Improvement Loan program is designed to make home ownership available to families who can not afford a conventional down payment and also need a loan to make repairs to the property.
It also would allow people who already live in a home that needs work to refinance and make the repairs.
The program is an offshoot of the Community Home Buyer's Program offered by the Federal National Mortgage Association (Fannie Mae) and GE Capital Mortgage Insurance Cos.
A spokeswoman for GE Capital said nearly $900 million is available.
Families or individuals with incomes as high as $46,575 -- 15 percent above the median area income -- will be eligible, according to Julie Gould, director of low and moderate income housing for Fannie Mae.
A mortgage can cover as much as 95 percent of the appraised after-repair value (that would be a 5 percent down payment); the repairs can account for as much as 30 percent of that. Previously, two separate loans were required, one for the mortgage and one for the repairs. And often, a family could not get the repair loan unless they already owned the house.
"It was a Catch-22 type of situation" Gould said.
"Where we might have affordable housing programs, we've heard from lenders and borrowers that, 'Geez, they'd [the buyers] really like to live in this house if they could have the roof fixed,' " Gould said in explaining the impetus for the new program, which is limited to single-family homes or units in condominiums or planned unit developments that will be the buyer's principal residence.
That sentiment was echoed by Jeanette Bernay, manager of Communications and Industry Affairs for GE Capital, which provides the mortgage insurance for the program.
"Especially in urban areas, there were a lot of homes that needed repairs but had relatively minor problems," she said. "It could be partly roof work or replacing a major system."
There is no limit on the type of repairs allowed and no minimum. It could be anything from a paint job or new water heater to an entire new heating system or plumbing.
Initially, the program will be available in 11 cities, including Baltimore, where there are participating lenders. So far in the Baltimore area, one lender, Columbia-based First Advantage Mortgage Corp., a subsidiary of First American Bankshares, has signed on. First Advantage also has an office in Towson.
First National Bank, which has settled $4 million in mortgages under the Community Home Buyer's Program in a little over a year, also is very interested in joining the program, according to William J. Frank, a bank spokesman.
Participation in the program helps lending institutions meet goals under the Community Reinvestment Act.
Although the amount of a mortgage a person qualifies for would depend on his income, a person at the $46,575 level could expect to borrow a maximum of about $130,000, said Judy Wheatley of First Advantage.
And while there is no floor, Wheatley said that as a practical matter it would be very difficult for people with incomes under $20,000 to afford a home.
The borrower has to pay closing costs in addition to the down payment and also must have enough cash to cover two months worth of mortgage payments -- including taxes and insurance. Closing costs, which can amount to more than the down payment, can be borrowed from another source, such as a family member, as an unsecured loan.
First Advantage will offer mortgages with interest fixed at the market rate, although origination fees will be slightly higher to cover processing costs, Wheatley said. Terms will be for 15 or 30 years, although Wheatley said she expects the vast majority to be for the longer period.
Aside from the low down payment requirement, more liberal financing guidelines also will enable more people to qualify for a mortgage: as much as 33 percent of a family's gross income can be devoted to monthly mortgage payments, including taxes and insurance. Normally, that figure runs about 28 percent. A family's total monthly loan payments, however, can't exceed 38 percent of its gross monthly income. That would include any money borrowed for closing costs.
In addition, applicants who haven't established a traditional credit record can use other means, such as regular payment of utility bills and rent, to document a good credit history.
Wheatley expects a typical purchase to be in the $70,000 to $90,000 range with repairs ranging between $20,000 and $30,000. Stable neighborhoods in the city and its surrounding suburbs would be prime areas for the program, she added. Prospective buyers should not aim to make a home the most expensive on the block; the after-repair value must be supported by the neighborhood.