By Ray Birch
BURLINGTON, Vt.– Vermont FCU is providing first-time homebuyers with “Seed Money” to not only bring in additional mortgage loans but also raise awareness of the credit union within its communities.
The new program is available to first-time homebuyers with a household income of $125,000 or below who are purchasing a single-family home, a double-wide manufactured home, or an approved condominium. The Seed Money is down payment and closing cost assistance, up to $7,500.
The $500-million Vermont FCU has provided more than $60,000 in Seed Money since the program began early in 2019. Formally called the Seed Money Mortgage Assistance Program, Vermont FCU said it is offering 3% of the purchase price up to a maximum of $7,500 for first-time homebuyers who meet the qualifications, are doing a conventional mortgage through the CU, and don’t qualify for other down payment programs.
The credit union said it expects to make 25 to 30 of the loans in 2019.
Mark Antell, AVP-mortgage origination at VFCU, emphasized to CUToday.info the program functions on three levels—as a means to attract additional mortgage business, to build CU awareness, and to provide a community service.
Antell added the program was developed after recognizing a need for down payment and closing cost assistance for first-time homebuyers who don’t qualify for assistance through the Vermont Housing Finance Agency (VHFA), Federal Home Loan Bank of Boston, or other community seconds.
“We do quite a few loans yearly with the Vermont Housing Finance Agency, and in 2018 we were their top producer here in the state,” Antell explained, noting the agency also provides first-time homebuyer assistance loans.
An Opportunity is Spotted
But what Vermont FCU noticed in the process, said Antell, is there was a need for assistance for first-time homebuyers whose annual household income marginally exceeded the VHFA limit of $100,000.
“What we found over the years is that maybe as many as 30 applicants annually didn't qualify for the VHFA program because they ran just above the state’s household income limitations. So, we developed our own loan program,” said Antell.
While expanding on the VHFA’s income limitations, Vermont FCU tightened in other areas to address additional risk, Antell said. He explained the CU dropped the debt-to-income ratio limit to 45% and added 40 basis points to the state’s 640 FICO cutoff.
“We tightened up on a couple of criteria since we expanded on the household income,” he said.
The credit union also saw a need to expand the qualifications for the loan. Antell explained the VHFA loan strictly limits borrowers to first-time homebuyers.
“We adjusted that slightly to include people who might have faced special situations,” said Antell. “For example, a recently divorced couple—one person keeps the home and the other needs to buy one again. They still need assistance for a down payment for the next house, so our first-time homebuyer restrictions there are little more loose so we can help more members.”
Antell said VFCU does not expect hundreds of the loans annually from the program, but said the volume it sees will be profitable, giving it more money to return to members.
“If borrowers carry this loan for 15 years, we will more than cover our costs for the upfront money,” said Antell, who added the funds are not coming from a grant and are paid directly by the credit union.
Providing a Hedge
But Antell said Vermont FCU is protecting itself by placing requirements on borrowers to keep the free money.
“As long as borrowers follow the rules they don’t have to pay back the money. There is no interest being charged on the funds. But they must stay in their home as their primary residence for 15 years, and if they don’t—if they sell the house, refinance with another lender, or convert their home to a rental property before that period ends—they will have to pay us back fully.”
Based on initial results and estimates by the credit union, Vermont FCU is projecting it will distribute more than $200,000 in Seed Money in 2019, according to Antell, who said the average cash being given to these borrowers ranges from $6,000-$7,000. The CU is also not adding a premium to its mortgage rates, pricing the Seed Money loan similar to Fannie Mae's HomeReady program. Antell said average closing costs and downpayment have been about $6,000.
The Primary Goal
Above all else, the goal for the Seed Money Mortgage Assistance Program is to help borrowers, but Antell said raising awareness of Vermont FCU is a close second.
“We just want to help the community and first-time homebuyers, and we spotted a need for our program, especially among young adults with no kids, their income was just slightly exceeding the state’s limits,” said Antell. “So, yes, this is a community service. However, the program, has definitely helped raise awareness of our name within our communities.”