The Great Recession was such a confusing mess that even economists are still trying to understand it, so pity the poor young consumers who want to buy a first home. For them, the pain of the recession is still fresh, and all they know is that the mortgage market played a starring role in the downturn. Sub-prime mortgages, mortgage-backed securities, mortgage fraud, toxic mortgages — they make mortgage sound like a dirty word.
As a way to ease the anxieties of young members and interest them in home ownership, Solidarity Community Federal Credit Union ($204.9M, Kokomo, IN) created a first-time buyers program in 2011 to demystify mortgages, dispel fears about the housing market, and ultimately get people into their first homes.
After the financial crisis, “there was so much negative information, and it was intimidating,” says DeAnna Holloway, vice president of mortgages for Solidarity Community. “You were almost afraid to say you worked with mortgages because people had such negative connotations of being taken advantage of. We saw a huge need for a program to help build that trust and confidence.”
Although first-time buyers constitute only a small portion of Solidarity’s membership, courting them with a special program had the potential to create a cadre of steadfast members because so many of them were young. It also was a great way to get young adults to join the credit union in the first place.
In three years, the program has produced 91 mortgage loans, 43 of them for new members. With more than 25,000 members, 43 seems like a drop in the bucket, but Holloway sees the program as an opportunity to cross-sell and build new relationships over time.
“For some people buying a home is a stressful process, and they won’t forget the financial institution who helped them through it,” Holloway says. As a result, “you get them a home loan, and they’ll want to move all their finances over.”
Part financial education and part financial aid, the program has five components, including a goody bag thrown in for good measure.
No Origination Fee
Solidarity waives its standard $750 origination fee for first-timers, who often struggle to get enough money together for the down payment and closing costs. So far, waiving the fee for the program’s 91 mortgages has cost Solidarity less than $70,000, a small price for building member loyalty.
Help With Grants
First-time buyers often don’t realize that federal programs exist to help people just like them. What’s more, the federal government defines a first-time buyer as anyone who hasn’t owned a home in three years.
Solidarity helps members get funding from the Federal Home Loan Bank, which offers up to $10,000 in grants depending on the buyer’s income. Only borrowers from participating financial institutions are eligible, and Solidarity has been a bank member since 2005. The program requires new homeowners to stay in the property for at least five years or pay back a prorated amount of the grant.
“If you’re buying a $50,000 home, that grant money can be your 20% down payment,” Holloway says. “You don’t even need mortgage insurance.”
A Low Down Payment
First-time buyers whose incomes are too high to qualify for grants can take comfort from the fact that Solidarity only asks for a 5% down payment. The credit union even helps members who are having trouble coming up with the money to establish savings goals and build the funds over time.
Information is the best way to overcome a first-time buyer’s fears, particularly with mortgages. Because buyers have heard so many negative things about mortgages, they need to hear some of the positives, including that mortgages are considered good debt because they help borrowers leverage the loan to build equity.
A local partner, Affordable Housing, teaches the course, which Solidarity members are encouraged to take. The class is a requirement for any member accepting grants from the Federal Home Loan Bank.
A Buyer Care Package
Solidarity tops the program off by giving first-time buyers a care package that includes a Black & Decker tool kit, discounts for U-Haul rentals, as well as coupons and gift cards for local restaurants. The goody bag also serves as a clever marketing tool.
“Obviously it’s not what brings everyone here, but I can’t tell you how much the care package helps grow the program by word of mouth,” Holloway says.