Most of us would find it astonishing that a person earning $19,500 a year could afford to buy a new home in a neighborhood where the houses sell for $115,000 to $600,000. But when the Los Alamos Housing Partnership developed Piñon Trails, a mixed-income community of 120 homes in Los Alamos, N.M., director Steve Brugger took advantage of every tool he could find to finance homes for buyers earning an average of $37,000 a year. That amount represents 35 percent of the area's median income of $105,600, a number significantly skewed by the salaries of highly paid scientists at the Los Alamos National Laboratory. Down-payment assistance, federally insured mortgages for teachers, soft second mortgages, interest rate buy-downs, you name it, he used it.

“The [buyer] who was making $19,500 got a Rural Development loan at 1 percent for 30 years,” Brugger says. “Financing was a big part of our [affordability] strategy.” Chickie Grayson, president and CEO of Baltimore-based Enterprise Homes, says she's seen that scenario played out “thousands of times.” Part of Enterprise Community Partners, a national nonprofit that provides financing for affordable housing for low-income families, Enterprise Homes is a master developer of mixed-income communities. “There is this sense that people of lower income can't be homeowners,” she says. But, she adds, “You can enable them, and they become part of the American dream.”

TAPPING FUNDING SOURCES With the significant tightening of the sub-prime lending market, builders need to know what resources are available to get their buyers into homes. And it's especially important for builders committed to building affordable housing, where projects often require that the buyers earn 80 percent to 120 percent of the area's median income—or less. Fortunately, there are a growing number of local, state, and national programs aimed at helping low-income families purchase homes and stay in them.

Take, for example, the MyCommunity mortgage from Fannie Mae, designed specifically for borrowers who earn at or below 100 percent of an area's median income, as defined by HUD. (HUD uses either the local number or the national median income, whichever is lower.) A subsidized loan, it gives borrowers with low credit scores access to pricing usually reserved for buyers with much better credit. Plus, the mortgage insurance requirements are lower than normal for a MyCommunity mortgage, says Charles Rumfola, vice president of product management and development at Fannie Mae.

Fannie Mae's expanded approval product is geared to borrowers with blemished or limited credit histories and is “very liberal in terms of debt-to-income ratios, which is exactly what builders want because it qualifies more borrowers to get into those homes,” Rumfola says.

And what about after the loan closes?

“It's not just about getting into the home; it's about staying in the home,” Rumfola says. “That's what we really focus on here at Fannie Mae. There are a lot of resources to keep them in the home afterwards. We can do loan modifications or repayment plans. We really go above and beyond the call of duty to keep them in their homes.”

Enterprise Homes uses a variety of strategies to provide financing to buyers earning anywhere from 40 percent to 120 percent of an area's median income. “We've done [projects for buyers earning] below 40 percent,” Grayson says. “Those people are great homeowners. They rarely foreclose.”

The programs Enterprise Homes typically draw on include:

  • Federal HOME funds, which are specifically geared to buyers earning 80 percent of an area's median income or less.
  • Community Development Block Grant funds, which are given to local and state jurisdictions and can be used to finance affordable housing.
  • Federal Home Loan Bank affordable housing grants, which can be used for down-payment or closing-cost assistance.
  • Whatever financing vehicle is used, Grayson says, the goal should always be to maintain the market-level value of the home. “If you have a house that appraises at $300,000 ... sell the house at $300,000,” she says. Then, fill in with grants and subsidies that bring the price down to what the buyer can afford. “You never want to diminish the value of the home.”

    Learn more about markets featured in this article: Los Angeles, CA.