By Kara McGuire
March 8, 2010
Jack the cat was sick of living in a basement apartment and yearned for his own window ledge. His owners, Nou Thao and Brian Bussey, were ready to move, too. Fortunately for the engaged couple, their timing couldn't be better. Interest rates are at rock bottom, properties are more affordable than they've been in years, and dozens of valuable home-buying incentives are enticing buyers into the market.
Programs that provide low-interest financing for low-to-moderate-income families, help with down payments, or offer forgivable loans for purchases and rehab are also plentiful. The trick is finding the funds and following the rules.
Programs are "ever-changing," said Mark Dorshak, mortgage counselor with Neighborhood Housing Services of Minneapolis. Just last month, for example, the cities of Minneapolis and St. Paul brought back the CityLiving program, which offers below-market-rate loans as well as assistance with down payments and closing costs.
Most of these programs benefit current renters and are intended for homeowners, not real-estate investors. Dollars tend to be concentrated toward areas hard-hit by foreclosures, but programs exist around the state.
As for income, Dorshak wants to clear up the misconception that these programs are only for low-income people. Families of four can make in the $80,000 range; singles can make more than $40,000 and still qualify for some grants. It was only after he started working as a counselor that he realized he left money on the table when buying his home.
Ronny Loew, sales manager for Waterstone Mortgage in Edina, Minn., doesn't dispute that these programs offer value to buyers. But getting the money can be labor-intensive. Many programs require buyers to take the eight-hour HomeStretch course. In some cases, money is earmarked for a certain house, or must be paired with a certain loan. And, as we just saw with the appliance rebates, free money goes fast.
Loew tells his clients to look at these programs "as a benefit that's nice to have, but isn't critical to making the deal happen."
Having an exit strategy is also key. The most generous terms are often reserved for people who plan to stay in the property for years, if not decades. If they need to sell, they may find themselves scrambling to pay back the money. "An individual might end up feeling trapped," Loew cautioned.
Thao, 27, and Bussey, 35, had hoped to receive two grants plus the $8,000 tax credit once they close on their three-bedroom home in north Minneapolis' Jordan neighborhood. In the end, they received the federal tax credit plus $8,000 from the Pohlad Family Foundation. The Pohlad loan will be forgiven if they stay in the house for at least seven years. Thao said that doesn't concern her because they plan to stay for several years, "until the market value goes back up."
The pair did not qualify for a third grant, illustrating Loew's point that money can fall through.
Whether you receive thousands of dollars or don't see a cent, you'll own a home come closing day. If you aren't ready to spend your weekends cleaning the gutters and mowing the lawn, or can't afford upkeep, tax assessments, and the other unanticipated yet inevitable costs of homeownership, you should pass up the free money.
The Minnesota Home Ownership Center has the most up-to-date and thorough list of available programs, as well as information on housing counseling and home buyer classes at www.hocmn.org. If you want to live in either city, www.livemsp.org is a helpful tool. Learn about mortgage loans and find a lender familiar with special programs at the Minnesota Housing Finance Agency: www.mnhousing.gov.