New program can help local 1st-time homeowners

Published 4:34 am Wednesday, January 23, 2019

Qualified first-time homebuyers in 53 Louisiana parishes can get up to $35,000 in assistance toward purchasing a home, under an innovative state program funded through disaster recovery dollars.

The Soft Second Loan program, which kicked off in September, is a collaboration between the Louisiana Housing Corporation and the state Office of Community Development.

It offers first-time homebuyers assistance to cover the gap between the cost of a home and the loan they qualify for, as well as closing costs. The second loan is interest-free and forgiven if the homeowner remains in the house for at least five years.

The Soft Second Loan program is available in parishes that were designated disaster areas related to hurricanes Gustav, Ike and Isaac — an area that covers the majority of Louisiana. These parishes include Washington, St. Tammany and Tangipahoa.

Assistance is available for first-time homebuyers in these areas with incomes at or below 80 percent area median income who want to purchase family homes. They are eligible to receive soft second loans of 20 percent of the purchase price (up to $30,000 per borrower) as well as up to $5,000 toward closing costs. The maximum purchase price for a home through the program is $271,050.

To qualify, homebuyers must be underwritten by one of the Louisiana Housing Corporation’s approved lenders, which will work with LHC to secure the second loan.

Robert Bizot, LHC Recovery Housing administrator, says in a typical example, a first-time homebuyer approved for a $120,000 loan may be looking to purchase a $150,000 home. In this case, the homeowner would secure the $120,000 loan via the traditional lender and a second, interest-free loan for $30,000 through the LHC. All or a portion of the $30,000 loan could be forgiven if certain conditions are met.

“The person would have a home that’s worth $150,000, and they only have $120,000 to pay on it,” Bizot says.

A major feature of the program is the potential for forgiveness of all or a portion of the soft second loan, depending on how long the buyer remains in the house.

The program designates a sliding scale of loan forgiveness based on length of time. If the buyer sells the home within 36 months, the entire loan must be repaid. The program requires 80 percent repayment for 36 to 48 months of residency and 60 percent repayment for 48 to 60 months in the new home. After the fifth year, the loan is completely forgiven.

Bizot says since the program opened in September, it has already helped several new Louisiana residents purchase homes — and it is expected to grow as awareness increases.

“It’s just now started to ramp up as the lenders start to understand the program,” he said. “We haven’t had a program like this since Katrina.”

Rents and prices for new homes often increase when housing stocks are damaged by natural disasters, making securing affordable housing difficult for many people in the affected areas.

The soft second mortgage is one tool to help overcome the affordability gap between the maximum affordable first mortgage financing for which the homebuyer qualifies and the purchase price of the home.

Thomas LaTour, program manager for the Office of Community Development, says the state had success with a similar soft second program after Hurricane Katrina that bridged the gap for hundreds of new homeowners in the New Orleans region.

“These people wouldn’t typically be candidates for home ownership because the home prices increased and they could not afford the debt service if they paid the sticker price,” he said.

LaTour says when it recently became clear the state would need to reallocate some unused disaster recovery dollars, the soft second program emerged as a top candidate.

“We wanted to fully utilize all the recovery funds and we thought affordable housing was the best place to relocate these funds to,” he said.

The program is limited to residents of federally designated areas related to hurricanes Gustav, Ike and Isaac. All parishes included are: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Calcasieu, Cameron, Catahoula, Concordia, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jefferson Davis, Jefferson, LaSalle, Lafayette, Lafourche, Livingston, Madison, Morehouse, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, Richland, Sabine, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, West Baton Rouge, West Carroll, West Feliciana and Winn.

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