By Ray Birch
URBANA, Ill.— There’s a growing homeowner market in this country—younger, successful consumers with high-paying jobs—who need a little help to get into their first home, according to University of Illinois Community Credit Union.
That’s why the credit union has introduced a 0% down payment loan. Susan Toalson, UICCU chief growth and advocacy officer, said the goal is to attract quality members who will remain with the credit union through their working lives.
“This is also about doing good for our members and our community,” Toalson said.
A ‘Real Hurdle’
Over the past year, the $668-million UICCU reported it has been seeing more quality borrowers, often younger, who lack the cash to close on a home loan.
“This has become a real hurdle,” she said, sharing an observation that has also been made by many real estate analysts, the many consumers have been pushed out of the market. “Homeownership for first-time borrowers has become a challenge.”
Toalson said the UICCU mortgage team invested a significant amount of time discussing the issue before coming up with the 0% loan to help borrowers get past the downpayment hurdle.
Seeking to ‘Alleviate Concerns’
“On July 1 we launched a 0% down payment mortgage program designed to make homeownership more accessible for our members. This new program will alleviate concerns about the upfront costs and enable more members to move forward with their dream of owning a home. So far, we've had two members that have applied for the loan and we're in the process of closing the loan with them,” Toalson said in the early days of the offer. “The members who have been applying for this loan often say this is too good to be true. That tells us a lot.”
Toalson believes when more consumers, and communities, learn about the offer, University of Illinois Community CU will see a steady flow of applicants.
“This is an opportunity to grow outside of our existing membership,” she said.
Program is a Test
A goal for the number of borrowers or dollars for the 0% offer this year has not been established, Toalson said.
“We see 2024 as our test,” she said. “This is a pilot. But getting two borrowers quickly is, in our opinion, a good sign about this loan. Again, we’ll test it in 2024 to look toward 2025. We’ll assess the loan, create more benchmarks, and consider any adjustments.”
Susan Toalson
Recognizing 0% downpayment loans contributed to the massive defaults that swept the nation and contributed to the Great Recession 15 years ago, Toalson said loan requirements protect the organization from defaults.
The loan is for a maximum of 30 years and is for single-family-home purchases only. Loans for refinances, modifications, cash-out transactions, non-owner occupied homes, second homes, investment homes or vacation properties do not qualify.
Counseling Program Required
In addition, “The borrower must complete homeownership counseling prior to loan closing and must have a minimum consolidated credit score of 720, with at least four established tradelines, and a verified minimum of two months reserves,” Toalson explained.
The borrower must contribute a minimum of 1% towards the overall purchase, Toalson added.
“The minimum contribution may be met through closing costs, prepaids or reserves,” she explained. “We recognize the mistakes many lenders made during the last financial crisis. And, that is one reason we are testing this loan in 2024.”]
Investing in ‘Financial Future’
UICCU, Toalson said, has found a growing market of younger, higher-income borrowers within its communities that are good risks but simply don’t have money saved for a down payment.
“We’ve found that our communities have many young executive borrowers, who can easily qualify for a loan from a debt-to-income perspective,” she said. “The challenge has been not having enough dollars for even a 5% or 10% down payment.
“We want those good credit borrowers. We want those borrowers that have the income to support the mortgage payment,” Toalson continued. “We never want to get our members into a challenging position, where they're buying outside of their ability to borrow. We want these young borrowers to invest in their financial future instead of paying rent. They are getting an appreciating asset. We are helping them with wealth creation. And home ownership is one of the fastest ways to do that.”