Posts Tagged ‘Rehab Housing’

Why I think Rural Communities need Rehab Housing Programs

November 19th, 2008

I’ve been talking to a lot of people here at the SDHDA’s Annual Housing Conference about Northeast Housing Initiative’s Rehab Program.  The conversation turned to why I’m so passionate about rehab housing programs.  In case you’ve missed it, I believe South Dakota’s rural communities could really benefit from a rehab housing program, and here are my reasons why. 

  1. It helps prevent people from living in substandard homes. Way too often people, who can afford a $60,000 house, settle for a lesser quality house because that’s what is available in the community at the time. The house may be priced at around $45,000, but needs an additional $20,000 - $25,000 in renovations. The homeowner moves in with the intent of taking on the renovation sometime in the future, but for this reason or that, the improvements never happen. Maybe the homeowner couldn’t acquire the remodeling loan. Maybe they couldn’t figure out how to do the renovations while living in the house. And maybe, the money they’d intended to spend on renovations was eaten up by the high energy costs of living in a poorly insulated house. What’s scary is that while living in the house the homeowner exposes his/her family to the hazards of lead-based paint, poor electrical wiring, or a leaking roof.
  2.  It makes homeownership possible for more people. I hope everyone understands how the Northeast Housing Initiative’s program works: They provide gap financing to income qualifying individuals. Specifically, this means NEHI provides a loan of 20% of the purchase price as down-payment assistance. This enables the bank to loan the remaining 80%. Because NEHI’s loan is a 0% interest, zero payment (during the life of the first mortgage), more families are able to qualify for purchasing a house. And since the NEHI has rehab standards, we know the homeowner is not living in a substandard home.
  3. It’s good economic development for rural communities. It’s no secret our rural communities need residents. Often economic development focuses on job development - which is good - but we have to recognize economic development isn’t just about jobs! In many ways a rehab housing program, based on the NEHI design, is really an economic development incentive that can be used to attract people to our rural communities. And I highly recommend communities develop a “people attraction” strategy as a part of their economic development plan.
  4. It’s a beautification program. Driving through the older housing neighborhoods in rural communities can be very depressing. Empty houses, overgrown grass, and junked cars, leave the impression of hopelessness. At times communities attempt to address the situation by tearing down the junk houses with the city taking ownership of the newly vacated lot. The dream is that someday, someone will buy and build a house on the lot. Dreams, however, seldom materialize without a plan and some hard work. A rehab housing program is a program that could help that dream become a reality before the housing deteriorates to the point of needing to be torn down.

I realize a rehab housing program won’t save any rural community, but I definitely believe it’s part of the answer.  Whether you agree or disagree, I hope you’ll share your thoughts so that we can build a dialog.

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Northeast Housing Initiative Interview

November 12th, 2008

One of the reasons we created the blog was to help people network and learn from each other.  That’s exactly what I did back in 2003.  After hearing about the innovative housing work being done by Northeast Housing Initiative (NEHI) of Nebraska, I gave Linda Kastning, NEHI’s director,  a call.  In a nutshell, NEHI had created a “purchase, rehab, resell” housing program, and I’d heard it had helped a lot of families get into homes.  Linda was extremely gratious with her time and knowledge, and we’ve stayed in periodic contact ever since. 

When some questions about rehab housing in rural communities recently emerged, I instantly decided that the best way to answer those questions was to try to connect Linda to a broader audience.  What you find below is a short interview with her.  I’m sure she’d be willing to answer any questions you have, either on the blog or via the contact information provided below.  I’d also encourage people to share other succussful programs that they are aware of.

 

Please describe what you do at NEHI

NEHI helps people buy their first home through our purchase/rehab/resell program. The buyers find their lender and their house.  NEHI purchases the house, assists the buyer in getting the rehab work done, and then sells the house to the buyer for the cost of the house plus the rehab.  At closing, NEHI comes in with up to 20% of the selling price as down-payment assistance, which means the lender only has to loan 80%.  NEHI’s loan is 0% interest and is due in full 30 days after the buyer 1) pays off the house, 2) sells the house or 3) defaults.  If the buyers live in the house until it is paid off, they have equity in the house to borrow the amount of the loan.

The beauty of this program is that it keeps the buyers’ payments affordable for 30 years so their life can go through the normal ups and downs, and the house’s major systems are in good working order when the buyer moves in.  Our hope is that they will have no major expense for 5-10 years.

Why did you develop the program? 

The main reason Northeast Housing Initiative (NEHI) started was Northeast Nebraska had no ongoing housing programs. Until about 1993, the only housing programs available were through CDBG grants, which were awarded to city and county governments who can prove that at least 51% of their population is below certain income guidelines, and which must be spent within a year or two. Once HUD HOME funds and Nebraska Affordable Housing Trust Funds became available, we could have more continuity to our programs.

The person who started our organization and program saw that in order for a village to keep its school, they needed to attract young families. In order to attract young families, they needed to make buying a home easy. So they started out with a down payment program in the village. But then he saw that in order to run a program efficiently, we needed a population base of at least 20,000 and in order to do that, we needed to be regional. So we started out with three counties and have now expanded to six. We try to take all the legal requirements and simplify them, leading our customers through the maze of buying that first house.

 

How do you finance your program? 

 

Key elements to our program’s success are:

 

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Rehab Housing in Miner County — Part 2

November 10th, 2008

The following is Part 2 in a series about the Rehab Housing program in Miner County, SD. I interviewed Tami Severson, who is the Housing Coordinator for the Rural Learning Center (RLC) in Howard. She graciously answered my questions about the RLC’s Rehab Housing Program. Further background on the program can be found in an earlier post.

 

Would you start by providing a brief overview of your rehab program?

Basically, we buy a house in need of major renovation, rehab it, and then turn around and resell it.  Sometimes we’re able to find a buyer before the construction begins, which is really helpful. 

 ’Before and After’ pictures of a Rehabbed House



How do you pick the houses you purchase?

First, we look at a house that has sat on the market for quite awhile.  Then we conduct a site survey, making sure the house is capable of being fixed up. We also put together an estimate of the work we feel needs to be done in the house.  This is probably the most important and difficult step in our decision-making process. It’s tough to get everything done the way we want and still have an affordable house. Sometimes it just can’t be done, and we don’t buy the house.

 What are the most important things you’ve learned about purchase, rehab, resell?

 How does the program help homebuyers?

Our program really takes a lot of the uncertainty out of the purchase and helps simplify the financing.  Typically, a homeowner buys the house, moves in, gets a construction loan (usually at an interest rate that is higher than their mortgage), completes the rehab, and then tries to refinance the house with these improvements.  They have to sweat out an appraisal and hope that everything goes through with their new mortgage.  With our program, the homeowner knows upfront what the house with the improvements will cost.  Then they only need to acquire one home mortgage. 

 How does the program help the community?

We’ve found that we are able to fix up homes that may not otherwise get a second chance.  That’s big because rural communities can’t afford to have very many rundown houses if they want to be an attractive place for families.

The sale of homes has improved as the job market in our community has improved.   We’ve also learned that having quality, affordable homes can meet the demand of our younger population as they settle in the area.

 Would you recommend that another rural community develop a program like this? 

I think it’s a great way for communities to fix up houses that may not otherwise get fixed up, but matching people up with the houses they want is difficult.   It’s gotten easier as the job market in Howard has improved, and it’s much nicer when a buyer can give their input into the work before construction begins It’s definitely something rural communities should consider. 

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Northeast Housing Initiative - A success story

November 7th, 2008

I’ve been working on an interview with Linda Kastning of Northeast Housing Initiative (NEHI) of Allen, NE.  Until that’s ready, Linda gave me permission to reprint a story from NEHI’s upcoming annual report. 

Since 2000, NEHI, Inc. - Northeast Housing Initiative has been strengthening our communities through the development of affordable housing in our six-county region. NEHI buys houses that need improvements, makes the necessary repairs, and then resells the properties. Prospective first-time homebuyers in the area learn about the responsibilities of homeownership through NEHI affiliated homebuyer education classes and access HUD HOME and Nebraska Affordable Housing Trust funds for down-payment and closing costs for their purchase through NEHI’s programs and the Nebraska Department of Economic Development. 

Local communities and families benefit from NEHI’s work. One example can be found in Wakefield, where Jesse and Jena Kaufman purchased their home. They moved in with their son, Timothy, in December 2007 after a major repair funded by NEHI. In the older, two story home, Jesse completely resided the exterior with vinyl instead of painting and saved enough money to replace the enclosed back porch with a deck, replace the water heater and install a dishwasher. Windows and doors were replaced and code standards were met. “It was a lot of work, but it was worth it,” Jesse said. 

Besides funding the home improvements, NEHI also provided down-payment assistance to help the young family. “We couldn’t have bought a house without NEHI’s help. We didn’t have any experience working with lenders and realtors,” Jena said. “We needed someone to talk to when there were unexpected expenses and decisions to make about the house and the closing. NEHI was there to help us make those decisions.”

You’ll learn more about Northeast Housing Initiative’s work in my future interview with Linda, but I want to lift out two important points from the above story.  First, because NEHI established a code of standards, we know that this family is living in a quality home.  Second, NEHI provided valuable assistance to the homebuyers in the lending process.  My guess is that if we had more organizations like Linda’s, we wouldn’t have this mortgage foreclosure crisis.  Keep up the good work, Linda.

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Rehab Housing in Miner County, SD

November 5th, 2008

Does your community have a house like the one to the right in need of rehab?  Before answering, you’re probably going to ask “what do you mean by rehab?”

That was the question posed to Joe Bartmann last week when he spoke to the Independent Community Bankers of South Dakota.

Rehab housing typically refers to the renovation of older houses that are in need of significant repair (i.e. — new windows, furnace, foundation, roof, etc…).  In other words, it’s about the non-cosmetic improvements necessary to make a house livable.

Early in our work in Miner County, SD, we recognized that way too often older homes languished on the market far longer than they should have.  Some buyers didn’t want the trouble of renovating a house.  Some couldn’t see the post-construction potential of an old dilapidated house. Others needed to move into a house right away, and couldn’t wait for construction. And all too often, we found that buyers could not afford to renovate a new house while still living in (and paying for) their old house.

In short, a multitude of barriers prevented older homes from being purchased, further depressing an already fragile housing market.

The Solution

We turned to a “purchase, rehab, resell” concept, which we discovered from Linda Kastening of Northeast  Housing Initiative of Allen, NE.   In this concept, the not-for-profit purchases a house in need of repair. They complete the rehab work and then sell it to a qualified buyer.

When we first started to investigate this concept back in 2003, I hadn’t discovered HGTV and had never heard of “flipping houses”; but that’s sort of what the concept is about.  In our case, however, there was an important difference:  our primary motivation was to develop affordable housing and revitalize our community — not make a quick buck.

To help offset the risk associated with the project, we turned to the Department of Housing and Urban Development’s (HUD) Rural Housing and Economic Development program.  The grant helped reduce some of the risk associated buying homes on speculation.

Questions

The program has had some fits and starts, and I think we’ve learned a lot.  It’s safe to say that it’s more difficult than your favorite “do it yourself” show makes it look.  Since I’m no longer directly involved in the housing work in Miner County, I hope to interview Tami Severson who currently manages the program.

But before signing off today, let me answer a couple questions Joe was asked last week.

In sum, I think the concept is a viable option to most rural communities hoping to address their housing needs.  Just keep in mind that like most things in life, it’s a lot harder than it looks at first glance.

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