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Are you eligible for mortgage assistance?

In 2008 the RHA launched a second mortgage program to fill the gap between what families could afford and what home prices were in La Plata County. The program has had tremendous response in the community; to date the RHA and the La Plata Homes Fund have financed more than $2 million in second mortgages, helping 62 families become homeowners.

In cooperation with the La Plata Homes Fund (LPHF), the RHA provides two second mortgage products: 1)  “silent” second mortgage loans ranging from $15,000 to $80,000 for income-qualified homebuyers, or 2) below market amortizing loans (starting at 1%).

The loans are available only to income-qualified homebuyers who have completed RHA’s Homebuyer Education Class and counseling program, and are able to obtain a fixed-rate, 30-year conventional home purchase loan. (Sub-prime loans are not allowed.)

Silent Seconds

To keep homeownership affordable, these loans have no monthly payments and are repaid only upon resale or transfer of the home. At that time, the original principal is due and payable, along with a share of the appreciated home value. (For example, if LPHF loaned 10% fo the purchase price, it receives back 10% fo appreciation, as “loan interest”.)

For example, assume a homebuyer wants to purchase a $250,000 home and is able to come up with $5,000 for the down payment. Working with a local lender, the homebuyer qualifies for a first mortgage in the amount of $195,000. For this example, assume that the homebuyer qualifies for a loan from the RHA for the remaining balance of $50,000. This $50,000 represents 20% of the purchase price ($250K).

RHA Example
Buyer down payment
$5,000
First mortgage
$195,500
RHA second mortgage (20%)
$50,000
Total financing
$250,000

Let’s assume the homeowner sells the house after 10 years for $350,000. After selling expenses and home improvements, the homeowner’s net appreciation is $70,000. In return for initially receiving the 20% loan ($50K) from the RHA, the homebuyer now pays back the $50K plus $20% of the net appreciation ($14,000 = 20% x $70,000) from the sale of the house. The seller is left with the remainder of the net appreciation ($56,000). This method of mortgage assistance is referred to as shared appreciation.

Amortizing Loans

For families that do not need as much gap financing, amortizing loans are a great option. These loans start as low as 1% and require a very low monthly payment. Loans range between $10,000 and $35,000 depending on need and funding availability. These loans are funded by the State of Colorado’s Division of Housing. In some cases, families may qualify for both a silent second loan as well as an amortizing loan. All loans are secured with a deed of trust and promissory note, and require that the home purchased with these loan products be the primary residence for the client.