Vail Daily column: Eagle County down payment programs can help locals
The Mortgage Guy
Affordable housing in Eagle County has been a challenge ever since the first lift opened in 1962. Back then, there the answer was a trailer park about where Potato Patch Club sits. I do recall one story about a guy in a Volkswagen van who lived in the parking lot where the village structure sits now who found his van too small and excavated a snow cave in a snow bank next to his van and expanded his living room quite handily. Rumor has it that was a bit of a tourist attraction back in the day.
But just like everything else, Eagle County has come along way to bridging the gap. Back in 1998, the county worked to establish a down payment assistance fund to help homebuyers bridge the gap to home ownership. Throughout the years, that program has helped 374 local families with over $4.6 million in loans. That is a very significant accomplishment, and cheers to all who have worked hard to make this program happen!
In general, these loans are set up as a second mortgage in back of the new first mortgage. The maximum loan amount has recently increased to $15,000. The borrower must contribute half the loan amount as his part of the down payment. So if you borrow $15,000 from the county, you must contribute $7,500 and borrow the rest as a new first mortgage.
There are a couple of versions of programs out there that allow for more flexibility as some first mortgage loans may allow one set of rules but not another.
Monthly repayment is not always required, depending on the type of first mortgage you get. If your first loan is an FHA, you must have a regularly scheduled payment and the loan is amortized over 15 years at 2.5 percent, which is a pretty good deal.
If you have a conventional USDA or a VA mortgage, then the loan program is what is called a shared appreciation loan. You pay it back when you sell the house, and the interest is tied to the rate of overall appreciation of the property during the time you owned it. If the house goes up 20 percent during, say, a five-year period, then you would own the amount you borrowed plus 20 percent of the loan amount. Now if you happen to hit the jackpot and your home goes up 20 percent a year in value, then this could turn into a very expensive loan, but in that case you could probably refi and roll in the second to a new first mortgage after a few years.
There are some limitations though both from the first mortgage lender and the county, and in some cases these will conflict in that something may work under one set of rules but not the other. In this case, the more conservative of the two will prevail.
In general the limitations on the county’s end include a upper limit on household income, local employment and assets and a max debt to income ratio. Limitations on the lenders part may include an upper income limit (which in the case of a USDA or “My Community” loan program is higher than those programs actually allow) or a maximum debt to income ratio limit (which may be either higher or lower than the requirements of the county program).
In addition, there may be conflicting methods of calculating income that may or may not work in the borrower’s favor. USDA for example will count Grandmother’s Social Security check if she is going to live there, and the county probably would not unless Granny was going in on the loan. Income limits on making too much money vary by family size.
However, not every lender will allow a second mortgage like these, and some will not allow it on every loan. But don’t make that deter you from asking, because it can often be done and we have closed several of these over the years. There are many calculations to be made to be sure that you will be eligible, and some consideration over the pros and cons to be sure this is the right deal for you and your family. But for many, these have turned into great deals and bridged the gap to home ownership. This is one time when you absolutely do not want to deal with an online or out-of-town lender who is not familiar with the intricacies of these programs.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgage guy.com.