There’s a little-known program run through the City of Austin that provides down payment money to low-income people free of charge. Of course, there's a catch: homeowners must live in the property for 10 years, or pay the city back.
Those who bought in when interest rates were almost twice what they are today, now wonder how can they refinance their mortgage without having to repay the city.
This story begins with a former neighbor of mine: Nancy Lyon. She is one of almost 2,000 people who have bought their homes with money from the City of Austin’s Down Payment Assistance Program. “The city of Austin gave me $7,000 to be my down payment,” says Lyon.
Other Austinites have gotten as much as $10,000 – the most a person can get through the program. Well, the money isn’t a gift so, people don’t get it; it’s technically a loan, so people borrow it. The borrower needs to meet certain criteria when it comes to income and expenses. But this loan is a forgivable.
One of the requirements for writing off the loan is that the borrower must live in the house for 10 years. Nancy Lyon accepted all the terms and conditions gladly. In exchange, she was able to buy a home in 2005 – at the height of the market – and got a good interest rate at the time, just a little over 6 percent.
But times have changed, and interest rates have come down significantly.
A few months ago, Lyons was thinking about refinancing her loan. “When the rates started going really low, I checked into refinancing and I was told by – at least one lender – that [refinancing] was not an option.” Lyons says “the way that these payment assistance are written, they consider refinancing ‘selling’”.” If a borrower were to refinance or “sell,” he or she would owe the city the money received for the down payment.
The Down Payment Assistance Program has been in place for 20 years. Throughout that time, interest rates rarely went down. But the recent and dramatic drop of interest rates actually pushed many people to call city staff asking if there was a possibility to do away with the rule that prevented them from re-financing – especially since the program is meant to help people stay in their homes.
The city agreed and it recently changed the rules.
Guadalupe Alcalá was one of the first ones to find out about the change. She lives in North Austin, and says she’s still in love with the little house she’s owned since 2006. “When I saw the house,” Alcalá says, “it looked like a little ginger bread house and I walked in and I said, This is it!”
Alcala is in her 50’s, single and working as a nurse assistant. She was always frugal with her expenses because she really wanted to be able to keep her house. Now that she refinanced, she is saving more than $200 every month with a lower interest mortgage.