Langley FCU’s HomeNow program combines the benefits of several popular first-time homebuyer programs to help those of modest means become homeowners and close the wealth gap.
Benefits include no Private Mortgage Insurance (PMI), no down payment, up to 3% financing for closing costs, and a $2,000 grant through the credit union’s foundation.
Members can elect to help other members by adding a donation to their own mortgage at closing, which equates to roughly $1 per month added to their mortgage payment.
Langley Federal Credit Union ($4.2B, Newport News, VA) is making it easy for members to afford a mortgage. It's also making it easy for members to help other first-time homebuyers do the same.
Through its recently launched HomeNow program, the credit union is reducing barriers around closing costs for first-time buyers. Qualified applicants can receive $2,000 grants from the credit union’s Langley for Families Foundation, along with 3% financing to assist with remaining closing costs. Langley FCU also offers mortgages for up to 100% of a home’s value, with no down payment or private mortgage insurance required. As a result, borrowers who qualify generally need to bring less than $1,000 to the table for closing.
The offering is especially timely in the current housing market. Despite low interest rates, rising real estate prices and bidding wars are making it difficult for some buyers — and particularly those of modest means — to purchase a home.
Curtis Baker, Chief Lending Officer, Langley FCU
“The problem we’re trying to solve is the affordability of the transaction,” says Curtis Baker, Langley FCU’s chief lending officer.
But that's not all. Whereas borrowers often understand the money they need to cover monthly payments, Baker says they often are unaware about maintenance and other home ownership costs.
“We’re sensitive to that and want to give members room to pay for things they might need, like furniture, paint, or even a lawnmower,” he adds.
In order to qualify for the program, borrowers cannot exceed 80% of the area’s median household income, and home prices must be less than $200,000 to keep monthly payments manageable. The cooperative is also working closely with local real estate agencies to better understand what homes typically look like for first-time buyers in the area.
“The maximum loan amount is one thing we may tweak about the program,” says Rob Lefkowicz, vice president of mortgage lending.
To qualify for the grant portion, borrowers must complete a separate application to the foundation along with the traditional mortgage application.
CU QUICK FACTS
HQ: Newport News, VA
Data as of 12.31.21
12-MO SHARE GROWTH: 16.4%
12-MO LOAN GROWTH: 20.9%
Where The Magic Happens
The HomeNow concept grew out of conversations about finding more ways for the credit union to help people, which led to researching other popular first-time homebuyer programs, including FHA loans and FHLB grants, and looking to create something better. The $2,000 grants are funded by other borrowers who agree to donate to the foundation when they close on their own mortgages — generally the equivalent of $1 extra per month on a 30-year mortgage, although the donation is made in a lump sum at closing. On its own, the amount is insignificant; however, it takes only 10 members or so to fund each grant. On top of that, because the foundation is a 501(c)3, all donations are tax deductible.
To launch HomeNow quickly, Langley contributed seed money to the grant program rather than waiting for member donations to accumulate. However, on a go-forward basis, the plan is to fully fund these grants by member donations.
Fred Hagerman, SVP/CMO, Langley FCU
“This goes back to the founding principles of credit unions in Europe in the 1800s [when] it was about bonding together to make land loans,” says Fred Hagerman, senior vice president and chief marketing officer for Langley FCU and chairperson of the Langley for Families Foundation. “We wanted to see if that principle of people wanting to help other people is still alive today.”
The cooperative is asking all mortgage borrowers if they’re willing to participate to help fund the program, and the response so far has been positive. About 30% are saying yes.
“The magic here is members directly helping one another,” Baker says.
Langley FCU expects to make approximately 70 HomeNow loans this year as the credit union balances helping people with the program’s inherent risks. Looking ahead, management expects to grow that number by five or 10 additional borrowers each year. In order to keep the program fully funded, 25% to 30% of new mortgage borrowers will need to be willing to fund the grant portion of the program each year.
The initial 30% response rate is in line with what Hagerman has seen over the years working with other charitable causes, whether it’s payroll deductions to the foundation or employees committing to volunteer hours. However, being willing to participate is only the first step — the funds don’t go toward the program until borrowers have their loans approved and fully funded. Only after closing does the lump sum donation go to the foundation.
Building Up The Pipeline
Initial discussions about HomeNow began in August of 2021, and after internal preparation — including legal work, approval by the foundation’s board, and more — the program began soliciting donations in mid-October to build its grant pool. The product officially opened to borrowers last month and the first HomeNow loan is expected to close in mid-February, with more to follow.
Rob Lefkowicz, Vice President of Mortgage Lending, Langley FCU
“The borrower is a healthcare worker with a single income who is buying a modest first home,” Lefkowicz says.
In other words, exactly the type of borrower the program was created to assist.
“We’re fortunate that we can leverage our solid balance sheet and size to help people in this way,” says Baker, noting the interest rate risk and credit risk involved with keeping these loans on the credit union’s balance sheet in a historically low-rate environment.
Hagerman praised the creativity behind the program.
“If you’re looking for new ways to serve your community, sit down with people and generate ideas,” he advised. “What problems are in your area of focus? For us, it was about helping people of modest means buy a home and build wealth.”