The new world of housing is much more scrutinizing of borrowers. Gone are the days of “stated-income” loans, and taking risks on potential buyers who really aren’t ready to own. This is making it much more challenging for buyers, especially first-time homebuyers, to get into the market and start developing family assets.

The fact that home-ownership has been the primary wealth creation tool for most families is unchanged. Home-ownership provides two things that families need: a stable place to live with the security of tenure, and an investment that can appreciate over time providing families with leverage to build their asset wealth, and move further away from poverty. It is still the American Dream.

What is changed is the process required to get a mortgage loan. Many folks say that coming up with the 20% downpayment, closing costs, and proving sufficient income are insurmoutable barriers, especially for low-income families. What many locals don’t realize is that the USDA Rural Development Direct Loan Program is designed specifically for counties like Chaffee, where an under-developed rural economy and high housing prices make it nearly impossible for low-income households to consider ownership.

The USDA-RD 502 Direct Loan Program targets households that earn less than 80% of the Area Median Income, based on household size. For example; family of four that earns less than $45,100 per year in total income (before taxes) qualifies, or a single individual that earns less than $31,550 qualifies. These loans provide downpayment and closing costs, all wrapped up in the loan. Loan terms can be for 33 or 38 years (as opposed to the traditional 30 years), currently at 4.5% interest. But the key benefit is that qualifying households will only pay about 1/4 of their monthly income towards the loan payments.

So if a family makes only $21,000/year, they will pay $519/month for mortgage payments on a $175,000 USDA-RD loan, with no cash for downpayment or closing cost. In contrast, using a traditional mortgage from a local bank, a homebuyer would need to have saved $35,000 in cash for downpayment up front, plus closing costs of $3,000 to $5,000, and then the actual mortgage payment on a $175,000 home would be $680/month.

The critical question being asked is “How do we prevent the foreclosure crisis from happening again?” For starters, banks are now required to closely scrutinize homebuyers to determine their long-term ability to make regular payments. Homebuyer Education classes are now required up front by many lenders, as they give buyers honest information about what it really means to be a home owner. This, coupled with one-on-one financial counseling by a dis-interested third party, makes sure that buyers are making sound decisions and that they can live up to their commitments.

The Chaffee Housing Trust (CHT) was created as a local resource to help low-income buyers navigate this comlex process, and provide options to families to get into homes they can afford. Nationally, homes sold through programs like the CHT are eight times less likely to go into foreclosure. This is a direct result of the education, counseling, and long-term stewardship that the CHT provides, with provisions to step in and prevent foreclosure long before it is too late.

If you think you may someday want to own a home, start now by getting the information you need. Contact the Chaffee Housing Trust and we can connect you to resources including classes, counseling, workshops, online financial education, videos, and facilitate the loan application process with the USDA. Chaffee Housing Trust 719-207-4348 info@chaffeehosuingtrust.org

Qualifying families will be able to get needed repairs on their owner-occupied homes. Financing will be provided with an affordable loan, much like a second mortgage. The initial focus for the program will be on energy efficiency upgrades, such as new furnaces, window replacements, weatherization, insulation, upgraded flooring, or other fixes designed to dramatically cut energy costs.

“Chaffee Habitat is very excited about this new service we are offering,” says Dale Shoemaker,  construction committee chairman. “It will allow us to serve the homeowner segment of our community. We plan on doing one Rehab this year to get our feet wet and to gauge the need in our community. Several members of our construction team have experience in this area, and we look forward to providing this new service.”

Family qualifications are similar in kind, but not in amount, to those for a new home construction: willingness to partner with CCHfH, ability to pay, and need. The first step is filling out an interest form followed by a private meeting with members from our Family Selection team to explain the program in detail. If interested in proceeding, the homeowner then completes a detailed application. This leads to a financial review from the finance committee. Once financial qualifications are confirmed, the construction team and other home-building and certification professionals will perform a home inspection. A scope of work will be agreed to in writing with the homeowners, so the extent of the Rehab is clear to all parties. Most home Rehabs can be accomplished in a matter of weeks, as opposed to months for a new build. The homeowner would see the immediate benefits through lower utility bills and a greater comfort level.

Molly Shethar, with Family Selection, says, “Our desire is for the monthly utility savings to match or exceed the monthly payment toward the cost of repair.”

Interest packets are available at the following locations: Salida–The ReStore ‘n’ More, Salida Community Center; Buena Vista–the ReStore and the Habitat office. If you or someone you know owns a home in need of major, energy-saving repairs, please contact the Habitat office at (719) 395-0482.

First, how much can you reliably afford to pay every month for a mortgage? You should pay no more than 30% of your monthly income towards housing (rent or mortgage). Banks call this your “front-end-ratio”. So if you earn $24,000/year (before taxes), or $2,000/month, you can afford $600/month in housing payments (30% of $2,000).

Second, how much debt do you have? How much do you pay out each month? If you divide your monthly debt payments by your monthly income, you get your debt-to-income ratio. If have a total of $500 in monthly payments on your auto loan, credit card, and student loans, then your ratio is 25% ($500 / $2000=0.25 or 25%). If you add in your housing payments ($600 + $500 = $1,100) and divide that sum by your monthly income, you get your “back-end-ratio” ($1,100 / $2,000 = 55%). When banks consider your loan application, they will expect ratios of no more than 30% on the front-end, and 40-45% on the back-end. So in this scenario, you would need to reduce your debt (pay off the credit card) down to $200-300/month.

Another factor banks consider is your credit score. It reflects how reliably you’ve paid back money you’ve borrowed in the past. If you were late on payments, or missed them altogether, your credit history records this for up to 7 years, and your credit score reflects your behavior. The lower your score, the harder it is to get a loan. It also can cost you more in fees, and/or require more in down payment. For most banks, a score of 660 or higher is required. If you’ve never borrowed money (had a credit card or loan), then you may not have a score at all.

Most banks require 20% down payment, which on a $200,000 home is $40,000. This is to motivate you to pay your monthly mortgage because if you were to walk away from it, you would lose that money. But there are alternative programs for low-income households that require as little as 5% down. They also have down-payment assistance programs which are basically a second mortgage for the down payment only. These are usually for a shorter time period and may have a higher interest rate. In any case, a minimum of $1,000 for down payment is expected, plus there are “closing costs” associated with the actual purchase transaction which can run $2,500 – $5,000 or more.

The USDA has a program for rural areas like ours which targets low-income households, for example a family of four that earns less than $45,100/year. Their loan will include down-payment and closing costs, as well as a lower interest rate (currently 4%) and longer term (33 years). If the family cannot afford to pay the full monthly mortgage payment, then the USDA will only require them to pay 24% of their monthly income. The rest of that payment becomes a second loan which the family doesn’t have to pay until they sell the home. This makes ownership affordable to people despite their low-income, as long as they have very little debt, a good credit score, and reliable income.

To learn more about becoming “buyer-ready”, contact the Chaffee Housing Trust at 207-4348. We have financial counseling and homebuyer education available for FREE, as well as affordable homes for sale.

Do you see yourself moving on from here, or is this the town that you want to live in for the foreseeable future? Do you enjoy a carefree lifestyle, or are you ready to invest yourself (time, money, emotion) in your home? Are your finances insecure or uncertain, or can you manage the risk and responsibility of taking on regular monthly payments for decades?

If you answered yes to the first part of any of these questions, you may just be a renter (for now).

There are lots of reasons to continue renting. But if you are ready to take the plunge and buy a home, there are many rewards in the long run. As an owner, you can:

• Take pride in your home and make it just the way you want it to be.
• Enjoy the stability of ownership and establish roots in your community.
• Know that part of your monthly payments is building equity (wealth) over time, money that you get back when you sell. If local home prices go up, you gain even more equity.
• Deduct the interest that you pay on your loan from your income, lowering your taxes.

Add to this:

• Once paid, rent money is gone; there is no return on your investment.
• Your monthly mortgage payments will be fixed, but rents can go up and you can be evicted at the end of your lease.
• Monthly mortgage payments can feel smaller over time as your income goes up due to cost of living raises or career improvement and promotion.

This may be the single biggest financial decision you make. Getting unbiased financial counseling and education is critical (available in Chaffee County for free). Key issues include: knowing exactly what your monthly budget is, where your money goes, how much you pay currently and how much you can afford (you should pay no more than 30% of your monthly income to housing). Establishing good credit is essential: Do you know your credit score? Do you know if you have any outstanding debt? How much do you pay monthly on current debt (credit card, auto loan, student loans, etc.)?

Becoming “owner-ready” can be a long process. But if you think you want to own a home someday, then start the process now. You have to nail down your personal finances so you know exactly how much you earn, spend, and owe. You need to clear up any past issues, and prove that you can reliably afford a monthly payment.

Ownership is often described as the ladder to the American Dream. As a renter, it’s hard to even get on the ladder, unless you are saving money and investing it so that you earn interest and your wealth grows over time. By owning your home, you are saving (mortgage) and investing (equity building) as well providing shelter and a sense of place.

Get answers to your questions by contacting the Chaffee Housing Trust. We can help you find the resources you need through our various partners and our programs. Call (719) 207-4348, or email info@chaffeehousingtrust.org.

Checking accounts are fairly easy to get, and easy to use, until you mess up. If you pay with a check and don’t have the funds to cover the check, you get hit with a penalty. Those penalties can add up quickly, beyond the amount of the check.

Credit cards can be even easier to get. But if you pay with a card, the merchant gets their money, but the credit card company expects you to pay them on time each month. They set a minimum payment to mostly cover the interest on the balance of the account (basically a loan to you). If you pay just the minimum, you will ultimately pay much more in interest than the original purchase. If you pay late, or don’t pay at all, the credit card company reports it to one of the three credit agencies (Experian, Trans Union, or Equifax). Then you have a mark against you for seven years. Eventually, if you don’t pay the money you owe, the account goes to a collection agency, and they will harass you with letters and phone calls until you pay. This may take years, but it will haunt you. Late or non-payments show up on your credit history, and lower your credit score. When you apply to a bank for a mortgage loan, marks against you and a low score can prevent you from getting a loan.

Fortunately, these things can be remedied. If you owe money, pay it, or better yet don’t borrow what you can’t pay back (pretty basic, I know). If for some reason you have unforeseen life challenges that prevent you from paying on time or at all, you can contact the agency you borrowed from to discuss options. They may be willing to work with you. The worst thing is to ignore it, as it just won’t go away. If you do have past debts that are unpaid, start by creating a household budget to analyze your expenses, and see if you have any extra money to start paying back your debts. You can contact debtors to come up with a realistic payment plan. Beware that once you make contact, they will pursue you.

Today, many schools are encouraging financial education through programs like the Young Americans Center for Financial Education which provides fun, interactive learning for all ages. Adults can get schooled as well, with free online programs like Foolproof Real Consumer Education. The Mountain River Credit Union in Salida provides free access to this program. The Chaffee Housing Trust has computers available in our office where you can work online, or you can do it on your own computer. The UAACOG provides financial education and counseling in Salida and Canon City. Contact us at 719-207-4348.

In Chaffee County, pre-recession housing prices had been rising nearly 10% annually over the previous decade, while wages grew 3.6%. With the economic downturn starting in 2007, home prices in the County fell 10% – 20% (depends who you talk to), but are still out of reach for low-income families (family of four earning less than $45,600/year). In the last year the average home sales price in the County was $390,400, in Buena Vista it was $211,200, and for Salida $231,700.

To buy a $200,000 home, you would need to have a solid credit history (later topic), and come up with a 25% down payment ($50,000 cash) plus a few more thousand for closing costs. Few households have the financial resources to achieve this. Then, with a $150,000 conventional loan, at a 4.75% interest rate over 30 years, payments would be $782/month including taxes and insurance. Add to that utilities (gas, electric, water, sewer, trash) and you could easily be looking at $1,000/mo. for housing costs. Conventional wisdom is that a household should not spend more than 30% of their gross monthly income (before taxes taken out) on housing payments alone (rent or mortgage) without becoming “cost burdened”. In Chaffee County, one-quarter of households fit this definition. This means these families would need to earn $2,683/mo. to be able to afford a $150,000 loan. If you can find a home that you can afford, it may come with rehabilitation and repair needs, making a purchase challenging for households without resources for post-purchase upkeep.

The biggest barrier is coming up with a 25% down payment and closing costs. Few households have the savings resources to set aside enough money. As times get tough, families dip in to savings or use credit to make up for lost income or underemployment. As a result, families don’t think they can afford to buy, and give up trying, or leave the valley for better jobs and cheaper homes.

This situation is something that we can change. Local solutions include Habitat for Humanity, the Upper Arkansas Area Council of Governments (UAACOG) , and the Chaffee Housing Trust (CHT). All offer homes for ownership to qualified households. Habitat and the UAACOG serve very-low-income households. The CHT targets low-income households.

Financial solutions include the USDA Rural Development direct and guaranteed loan programs as well as others. With these programs, households earning less than $20,000/year can get into home ownership. Some loans include down payment and closing costs, so little or no money is needed up front. One USDA program provides monthly assistance if income is too low, or drops (repaid later). We’ll discuss these programs in much more detail in coming weeks.

For many years now, Chaffee County has struggled with the issue of providing affordable housing to essential workforce members of the community. Market forces have driven the cost of home ownership out of reach for low- and moderate-income residents, removing the first rungs of the ladder to the American Dream. Instead of being able to imagine raising a family in the community where they work and live, all too many people are left out, watching the now unattainable dream being sold off to the highest bidder.

It would be contradictory to the values of this community, and an act of gross negligence, for us to fail to act to preserve the character and quality of our community while we can still do something. The Chaffee Housing Needs Assessment (January 2007) revealed that 64% of residents “strongly agreed” that workforce housing needed to be addressed, 59% “strongly agreed” that low-income housing needed to be addressed, and 85% of employers placed the highest priority on entry-level for-sale housing. As laid out in this carefully researched study, the Needs Assessment identified several steps that the community could take. Those recommendations included: the creation of a community land trust to provide home ownership, changing ordinance to require and incentivize inclusion of affordable units in new development, and providing county owned land for affordable housing. Elected officials have responded to this grassroots demand for action.

Eighteen months after the publishing of the Chaffee Housing Needs Assessment, the City of Salida and the County are putting that plan into action. The nonprofit Chaffee Housing Trust was formed, based on a strictly democratic governance model that cedes control to the community. The City of Salida has taken the lead on bringing the development community to the table by proposing a housing ordinance that will be inclusive of low- and moderate-income residents. The County has contributed to the effort by jump-starting construction with the donation of a lot that could be leveraged to build more units than a developer could do on their own.

By any measure, this has been a rational, carefully-vetted process, in plain view of all the stakeholders, with transparency and open dialogue. Unfortunately some members of the community have failed to notice this movement, and fail to appreciate the common benefits it will bring. Joe Judd’s lengthy posting to the Salida Citizen reflects this position. Mr. Judd’s complaints are numerous and well-intentioned, but fail to accurately portray the issues or the facts.

The proposed Crestone Heights development is the Chaffee Housing Trust’s (CHT) first project, after a lengthy consideration of several options. The County agreed to donate the land contingent upon the sale of the neighboring lot to the CHT and the development of much-needed affordable units. As any developer does, the CHT negotiated the sale of this lot and the development of the two contiguous lots with the land owner. In return, the land owner gave up the opportunity to sell the lot at a profit, or to develop the lot at a potentially-significant profit. Together, the developer and the CHT will create 9 units, 8 of which will be restricted for sale to qualified buyers (earning 80% Area Median Income or less, as identified in the Housing Needs Assessment). This deal lowers the developer’s risk proportionate to the diminished profit margin. There is no undue or disproportionate benefit to a single developer. Any developer who is as willing to come to the table will be treated the same way. In fact, Mr. Judd himself has approached the CHT about partnering on a project. There is significant benefit to the entire community, thus meriting the County’s donation. The project is no different than what could be built if it was entirely owned by a private developer. The negotiations have been no different that what would typically take place between land owners, contractors, and developers. The fact that it is designated as affordable housing has no bearing on the property values of Mr. Judd’s neighboring development, as studies have borne out. The process was above-board, discussed in public hearings, and strongly supported by the community and the commissioners.

Mr. Judd mischaracterizes the City of Salida’s efforts to create a zoning ordinance and incentives that will foster more inclusive housing. His assertion that an ordinance drives up housing costs are not supported by research. In fact, in many places where similar efforts were made, it increased the stock of available housing that was affordable. Inclusionary Zoning creates a level playing field for all developers, with predictable outcomes. Mira Monte may not have been the contentious issue it became had there been such ordinance in place. The City needs to establish rules that put the burden of new development fairly upon those who benefit (new homeowners and developers) and share the equity in our sought-after community fairly (inclusion of low- and moderate-income residents in new housing developments). Fees in lieu are another piece of the puzzle that makes it fair for small and large developers alike, but does not burden existing homeowners. If the City doesn’t set the rules, then who will? Clearly the marketplace has failed to provide affordable housing, forcing the City to act on behalf of all citizens in pursuit of the common good – a sustainable, inclusive, diverse, equitable community.

To his credit, Mr. Judd did create affordable units in his Triangle Court project a few years ago. While four of the units were affordable at first sale, that affordability was then lost, and the next buyers will pay full market price. The critical aspect of the Chaffee Housing Trust that must be understood is that units that become part of the CHT’s inventory will stay affordable in perpetuity. Each successive buyer will also pay an affordable below-market price. Each seller will still realize some equity that is reflective of the market increase in value, but some of that equity is also kept with the home. This eliminates the need for any ongoing subsidy to retain affordability, removing the burden on government to provide housing subsidy year after year for each unit. So the value of the County’s land donation to the Crestone Heights project will never be lost. It was a one-time donation with perpetual benefit. This is wise and prudent fiscal management of collective resources. A one-time sale of the lot would have brought a short term infusion of cash. By putting the lot into the CHT’s inventory, the benefit is realized over and again with each sale and resale of a unit on that property. As steward of the public good, the CHT retains control of the land (and its value) in perpetuity.

The rising costs of development are a result of the market forces at play. There is an increasing demand to live in our community that is stressing the capacity of government to provide the expected services. Sustaining a healthy community requires that government fund services (water, sewer, schools, etc.) to meet demand. It is fair to ask that the source of the stress on services be asked to pay its fair share. If growth is the source of the problem, then growth should bear proportionate weight of the solutions.

It is precisely to avoid the situations in Aspen, Vail, and Summit County that the current effort to address affordable housing has been initiated. In fact, inclusionary housing ordinances in these areas are far more punitive and costly to developers than anything currently under consideration in Chaffee County. They waited too long, and acted too late. We have the privilege of time to act now, before we become like them. If we fail to act, then we will lose our lower- and middle-income residents, and the quality of our community just as Mr. Judd fears.

This is just the beginning of the dialogue that is needed between all stakeholders in our community. It must be open, based on accurate information, fair, and equitable. This means that all sides must concede something in order to get something. The Chaffee Housing Trust is open to critical feedback and debate, and will continue to invite any interested parties to grab a seat at the table. But this must be a solution-oriented process. With the Chaffee Housing Needs Assessment as a guide, and the Chaffee Housing Trust as conduit for action, the other pieces of the puzzle will need to be put in place. This includes private enterprise, developers, government, financial institutions, nonprofits, and most importantly concerned citizens.

Feel free to contact me if you have any questions, or would like to be involved in creating affordable housing for Chaffee County.

Read McCulloch
Director, Chaffee Housing Trust
719-207-4348