Inclusive Lending For First-Time Homebuyers Turns Dreams Into Reality

A program at Carolina Foothills FCU targets low-income borrowers with flexible underwriting practices, financial education, and partnerships with public, private, and nonprofit groups.

The Greenville-Spartanburg area in South Carolina is one of the 10 fastest-growing cities in the country. The area has attracted thousands of newcomers over the past decade driving up home prices at double-digit rates. Unfortunately, such transformation hasn’t occurred equally across the region. In Spartanburg’s Northside community, millions of dollars in public and private funds have been pumped into the area to spur revitalization, and one credit union is doing its part one homeowner at a time.

Founded in 1960, Carolina Foothills Federal Credit Union ($192.6M, Spartanburg, SC), launched its Financial Inclusion Mortgage for First-Time Homebuyers program in 2019. The program targets low-income borrowers mostly people of color and provides flexible underwriting practices, financial education, and partnerships with public, private and nonprofit groups.

“This is a program with special offers and incentives designed to help borrowers stop just dreaming and actually start living in their own homes,” says Chiannon Pauley, marketing strategist at CFFCU. “It is incentivized to help those of low to moderate income be able to qualify along with other higher-income borrowers. The program provides reasonable requirements for approval, and financial literacy is required to help the member understand the mortgage process, what to expect, how to plan for expenses, how to find a contractor, and more.”

Flexible Underwriting Practices

First-time homebuyers can qualify for a 30-year term with a 97% loan-to-value maximum. What’s more, the credit union does not require private mortgage insurance. Borrowers can get by with as little as a 3% down payment and receive an interest rate priced at just 50 basis points above the market rate. Underwriting guidelines require a maximum 30% housing ratio and 45% maximum debt-to-income ratio, a minimum credit score of 600, with compensating factors, and two years of verifiable income.

Borrowers are allowed to count gifted money and down payment assistance toward income. And when evaluating credit, loan officers can take into account 12 months of rental history from landlords; two to 12 months of satisfactorily paid utility bills; renters, auto, or life insurance premiums paid satisfactorily; and receipts for childcare, school tuition, or medical bills.

“We also allow completed financial homeownership instruction to mitigate less-than-stellar credit history,” Pauley says. “We have a flat-fee origination and lower closing costs than most other financial institutions.”

Secrets To Success

CFFCU, which has five branches to serve its more than 17,000 members, has been focusing on low-to-moderate income borrowers for years. But the credit union really began ramping up its efforts in 2015 when it became a certified Community Development Financial Institution (CDFI) and began applying for, and receiving, grants for loan loss and capital from the CDFI Fund.

This gave CFFCU more latitude to lend deeper into the community without fearing regulators clamp-down, Pauley says. “To date, we do not have any delinquency or charge-offs for first-time homeowners mortgages.”

Financial education is a key part of the credit union’s success. In addition to a required class on homeownership, the staff provides coaching and an in-house designed workbook that walks borrowers through the process and allows them to take notes as well as store receipts and paperwork. The workbook serves as a useful reference guide after the purchase.

The credit union also works with several partners that provide crucial down payment assistance the Federal Home Loan Bank of Atlanta, Northside Development Corporation, and the City of Spartanburg.

From April 2020 to April 2021, the credit union made 20 loans to first-time homebuyers for $3.2 million, with an average loan amount of $160,593. Approximately one-third of these members received a total of $34,917 in down payment assistance from the credit union’s partners, for an average of $5,819 per loan.

At CFFCU, approximately 74% of its loans have gone to low-income borrowers. At other local financial institutions, that number is closer to 25%.

‘Not Yet’ Instead Of ‘No’

In today’s housing market of soaring prices and short supply, it can be difficult for would-be homeowners to find the right home, at the right price point, in the right location.

“While we might not be able to approve every application we receive, we use a not yet’ approach to those who are not quite ready,” Pauley says. “We refer these members to one of the 22 certified financial coaches we have on staff.”

The coaches begin working with those members to help them make lifelong habitual changes that will improve their economic mobility and help them achieve an approval on their next application.

But mortgages are just one facet of the credit union’s financial inclusion initiatives.

CFFCU also offers second-chance checking accounts, vehicle loans with reasonable rates, small-dollar personal loans, free financial coaching, and seminars on topics such as understanding credit, basic budgeting, saving for the future, and avoiding predatory lending. Its first-time auto loan program has no requirement for a co-signer as long as members meet certain criteria and work with a financial coach to prepare for the purchase.

“Our core value is that everyone is treated with respect and dignity, and our efforts are handled the same way,” Pauley says. “Many of our products were developed to create opportunities for financial success for anyone who comes through our doors.”

June 6, 2022

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