Many of us want to put down roots in the places we call home, and this often includes buying a home. Yet rural residents in Appalachia face unique challenges in pursuing the homeownership dream with a lack of high-quality and affordable homes, downpayment requirements that are burdensome given the relatively low median income and employment opportunities in their communities, and lack of access to financing, especially for homebuyers with low and moderate incomes.
Residents of rural communities take pride in the fact that they have neighbors who look out for each other, teachers who know their students, and leaders of all ages and walks of life who are determined to build a stronger future for all. Homeownership strengthens the fabric and resilience of rural economies at a time when their populations are declining faster, and unemployment rates are climbing higher in comparison to other places.
A $4 million loan from the Robert Wood Johnson Foundation to the Federation of Appalachian Housing Enterprises (Fahe) will help expand homeownership across Appalachia, allowing buyers to more easily borrow funds to cover a 20 percent downpayment. An accompanying grant will provide general operating support to Fahe.
Why It Was Needed
Lenders typically require a 20 percent downpayment to be approved for a “conventional” mortgage, putting homeownership out of reach for many rural home buyers with low incomes. With less than 20 percent up front, the lender might require private mortgage insurance, which can significantly increase the monthly mortgage payment and make the total mortgage unattainable. Another option—which is often less expensive—is a loan in the form of a “second” mortgage that bridges the downpayment gap, creating a different way of making homeownership attainable.
First mortgages are often sold to government-sponsored enterprises (GSEs) such as Fannie Mae so lenders can use that revenue to keep making loans. Because GSEs don’t buy second mortgages, fewer banks offer them—despite the low financial risk—especially to home buyers with low incomes. Not being able to sell second mortgages to GSEs also has limited Fahe’s ability to scale up this solution to meet the need for it in Appalachia.
How It Works
With RWJF’s investment, Fahe can expand its second-mortgage product and create more homeownership opportunities for people with low incomes in rural Appalachia.
This initiative is intended to demonstrate the creditworthiness of second mortgages in the interest of spurring and supporting larger conversations with Fannie Mae and other GSEs around buying second mortgages, which would make them far more accessible at a time when many people at various income levels are struggling to purchase homes.
In the Spotlight: Frontier Housing
In the heart of Appalachia’s Ohio River Valley in northeastern Kentucky, Frontier Housing is one of Fahe’s members that provides second mortgages. By providing qualified borrowers with low and moderate incomes downpayment loans as low as 3.5%, Fronter Housing opens the door for people to own an affordable, high-quality place they call home, and through which they also can gain long-term stability and financial independence.
Established in 1974, Frontier has built more than 400 homes for families with low incomes in Eastern Kentucky. It also offers pre- and post- homeownership counseling, credit counseling, and advocacy efforts, and is involved in the acquisition and rehabilitation of homes to make them available to the families that they serve.
Founded in 1980, the Federation of Appalachian Housing Enterprises (Fahe) is a community development financial institution serving a network of more than 50 organizations that create housing and promote community development across counties of Appalachia experiencing persistent poverty. It has delivered more than $250 million a year in investment capital in support of this goal. Recently, Fahe has expanded its business model to move beyond housing to include education, health and social services, and economic opportunity in order to more comprehensively envision and create thriving healthy places.
Fahe is a member of the steering committee of Partners for Rural Transformation, which is made up of six regional CDFIs and nine national support organizations committed to ending persistent poverty in rural America.