There are many costs associated with homeownership, yet down payments and other upfront costs are often the largest hurdles first-time homebuyers, especially those in the low-to-middle income bracket, face in their quest for homeownership.

Many forms of grants, gifts, and assistance can help would-be homebuyers lower these initial costs. For the past three years, TruWest Credit Union ($949.2M, Scottsdale, AZ) has dispensed funds from the Workforce Initiative Subsidy for Homeownership (WISH) grant program, run by the Federal Home Loan Bank of San Francisco.

“We’re helping people who can’t afford the full down payment get homes,” says Lance Levin, the credit union’s vice president of mortgage lending. “It puts them in a position to build equity.”

Take From WISH, Make A Wish

Every spring, the Federal Home Loan Bank of San Francisco earmarks funds for its WISH program. Financial institutions, both credit unions and banks, request a piece of this pie to distribute to eligible first-time homebuyers as down payment assistance.

Out of its WISH money, TruWest, contributes $3 for every $1, with a maximum of $15,000, for eligible members in Arizona and Texas who are saving for a down payment.

This year, the credit union has received $500,000 in FHLB funds to distribute between April 1, 2016, and March 31, 2017. Since 2013, the credit union has contributed more than $716,000 in down payment assistance and has helped 48 families with approximately $14,930 in assistance per family.

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According to Levin, from April 2015 to March 2016 alone, the credit union contributed $450,000. And that number has the potential to keep growing even beyond what the credit union originally planned for.

“Occasionally, at the end of the year, the FHLB comes to us and says it hasn’t used all the funds,” Levin says. “So it’ll ask us if we’d like some additional funds. Last year we started with $350,000 and then added another $100,000 later.”

TruWest advertises the WISH match to members via its website as well as through city organizations within Maricopa and Pinal counties in Arizona and Travis and Williamson counties in Texas.

“We get some members from non-profits,” Levin says. “But most come from our city partnerships and our own marketing.”

It's a challenge and it can be difficult if you're a small credit union. You have to have underwriters to dedicate to this product.

WISH Challenges

Members that want to take advantage of the WISH grant must first qualify under the FHLB of San Francisco’s income guidelines, Levin says.

This is where the credit union faces its largest challenge. The FHLB of San Francisco calculates income differently from Fannie Mae, Freddie Mac, or HUD. TruWest fronts the funds to homebuyers and then submits a reimbursement request after close of escrow. If the FHLB does not agree with how the credit union calculated the homebuyer’s income they will not issue reimbursement. That leaves the credit union with a loss.

The following table shows the income limits based on county and number of adults in the household:

2016-2017 Income Limits

To ensure discrepancies in income calculations don’t cause losses for the credit union, Levin recommends investing time and resources into properly qualifying members for all grants and programs like WISH.

“It’s a challenge and it can be difficult if you’re a small credit union,” the mortgage vice president says. “You have to have underwriters to dedicate to this product.”

TruWest dedicates three.

After the credit union determines a member meets income qualifications but before it enrolls the member for the grant, TruWest runs the entire application through its own standard mortgage underwriting process for approval. Only if it approves the member in both instances does the credit union enroll the member. The second layer of verification reduces the likelihood that a discrepancy in income will come back to bite the credit union.

When a member has earned loan approval from TruWest and is enrolled in the WISH program, they must then find a house within the approved dollar amount as well as complete home-buyer’s education through one of several credit union-approved local non-profits or mortgage insurance companies.

“These are intense, almost eight-hour classes that teach a much higher level of homebuying education than they would get in a webinar or happy hour set-up,” Levin says.

WISH Benefits

The WISH funds can be used to cover the closing costs and a portion of the down payment. Typically there are no leftover grant funds in a transaction, but in the event there is, the surplus must be applied to the principal of the new loan.

And for members that don’t save enough to earn the full $15,000 grant, they can combine the WISH grant with other sources of down payment assistance.

“We’ve had cases where a member buys a $150,000 house and after they apply all their eligible grants they actually end up with a $105,000 loan,” Levin says.

Levin knocks on wood as he says only one loan made with the WISH grant has gone delinquent. And though he admits the one situation was “freakish,” he believes there’s an obvious reason why these loans do well: they’re not full grants.

Rather, because the member invests up to $5,000 of their own money, they retain a sense of responsibility over the loan and are more likely to make payments. That’s as powerful a benefit to the credit union as anything.

“Members are taking care of these loans better, they perform better than loans made in other grant programs, and there’s a greater sense of pride and ownership when they put in money themselves,” Levin says.

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