From Partnership to Homeownership
Whitney Jett is a NOAHH partner family who started her partnership in June 2016. NOAHH will be following her story through the entire partnership and hopefully beyond. Part 10 is about her taking the required financial fitness classes. For previous parts, click here: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8 and Part 9.
Financial literacy is an important part of NOAHH’s homeownership program. While many partner families already have a handle on their finances, like a lot of folks, many future Habitat homeowners have never been taught in any formal setting about budgets, savings, or financial responsibility in general. The financial literacy courses ensure that, as homeowners, they have been grounded in the basics and understand many of their options better, no matter what their background.
Whitney had to figure out how best to schedule her classes while working and completing her other sweat equity hours. Because she was working with the same person who taught her First Time Homebuyer Class, Whitney was already familiar with her teacher and the location. The only snag was finding time. Like many partner families, she had to consider her full-time job while also putting in her sweat equity hours. She was eager to get the classes out of the way and move on to completing her hours on site.
“[Deborah Davenport of Desire Community Housing Corporation] was trying to schedule classes where it wouldn’t be just me and her,” Whitney said, “because that might be weird. She was trying to get people together, but it was a little difficult. At first it was a little hectic, a little stressful trying to figure out what Saturdays I need to take off to do the classes. It was a lot of decision-making on that part. That seems to be with everything when you work normal days and business hours, everything else is also during business hours so you have to take off work.”
Eventually, Whitney got a promotion at work, and her new schedule made things easier. She ended up taking the class with only one other student, but the small class size did not cause any problems.
Whitney’s experiences in banking and living on her own had taught her a lot about saving money, but she still learned a lot in the class. Topics included how to save money, how to build wealth, and different products and services that were generally available.
“I learned saving money requires real steps,” she said. “You have to have a goal. You have to have a plan to get there. In your mind, you’re thinking that you’re saving money for anything that comes up, but if you have a goal, then it makes it more realistic. ‘I can’t touch that money if I feel like going to Beyonce’s concert tonight. I can’t touch that money for that. I gotta save that for my car.’ It creates a different mentality of why that money is there. It was cool. I’m putting money into different account for savings, so I’m working on housewarming money.”
Another major part of the Desire Community Housing Corporation financial fitness class was about fringe institutions and products to avoid. Payday loan places, certain rental outlets, and check cashing spots offer short term access to cash and materials at what seem like reasonable rates, but come with high risks in the form of fees, interest rates, and other practices that drain money with every transaction.
“She was showing us the percent that they can charge interest in everything you get, and it’s just ridiculous,” she said. “There’s no limit. A payday loan can charge 586% interest. It was ridiculous.”
The First Time Hombuyer’s Class that Whitney took had a lot of information about the traditional method of home-buying, but it also had a lot to offer those in Habitat’s program. The class focused on information about processes and needs of first time homebuyers. The financial literacy class had a different tone. For Whitney, Deborah Davenport’s class featured a lot of practical guidance on how to change your perspective on saving money (other classes may differ).
“It was a lot more like advice,” Whitney said. “‘This is how to go about what you do with your money.’ Don’t look at it as, ‘Because I have these bills, I can’t have any fun.’ Look at it as that little bit of a sacrifice to have fun later. It was interesting. Everything was relevant this time. The classes tied in to each other because a lot of the stuff we talked about in the other class was being financially fit to be a homeowner, but this class was definitely more about how you should personally handle your finances. Make sure you definitely save money to invest for later, because it’s not just about our generation. It’s about our next generation, too.”
One of the more important parts of the class involved what a “rainy day fund” was. Whitney said the class emphasized that when saving, you need to anticipate more than one emergency at a time.
“One section of class we harped on a little bit was people always say they prepare for a rainy day,” she said. “Well, what do you consider a rainy day? It’s more like a storm. It’s more like a hurricane-type stuff you really need to be prepared for. Losing your job or something like that. I don’t want to ever lose my house. I don’t want to get behind because of bad luck. I don’t want that to ever be me, so I want to have savings to at least give me a little buffer zone so I could find another job in the meantime or whatever I need to do. It was just the idea that no matter how prepared we think we are for anything that might happen we’re not ever prepared for several rainy days. We’re not prepared for when everything happens at once, and it usually does. It’s usually, ‘Your car broke down, and you gotta get a new engine, and oh, my roof just collapsed… onto the car.’ It just happens. That’s how it is. So you gotta be prepared for what you can’t expect. Pretty much if you don’t think it’s gonna happen, it’s gonna happen. Especially with my luck. It’s gonna happen. I’m looking over my shoulder.”
Her caution about rainy days has not always kept her from spending. The class made her reflect on her own financial weaknesses and how she has coped with them in the past. Her experiences have put her in a good financial position and helped her develop habits that help her save, but impending homeownership has made her focus more. She has begun to use some of the tricks she learned in her classes.
“It’s just small things,” she said “Overspending in general. I’d hit up the mall and ‘ooh I need that!’ …swipe. My financial problem is having money. If I have money, I’m gonna end up at the mall. I’m not broke, but when I’m broke, I’m really on it. Then I panic. Then I have to look back and say, ‘what could I have done better?’ But it’s too late. My credit card’s already up. Can’t do anything about this now. I like the idea of tricking myself into not having money. Tell yourself that you’re broke so you don’t end up spending. That way I find myself not going out to lunch to eat. I end up bringing stuff form home. I end up finding myself making those little small decision, and so I keep more money in the bank, and then I hide it from myself. It’s something that evolved. I’ve always tried to save money. I’m paying more attention to my savings now because I actually feel like I’m about to have a house. I need to budget, and I need to have money in the savings account for maintenance and all these other things that are gonna come up. So maybe not this year, maybe not next year, not in 20 years, but maybe in that 21st year, if you don’t have the money for it, then you’re gonna end up in a 20 degree winter someday with no heater. I always tell myself I gotta be prepared; now I need to put this into action. So I tell myself ‘you’re broke.’ Every single day now. Because now it’s like this money is already set aside for something else. That helps me.”
Part of financial literacy is understanding that your home is an investment. Habitat homeowners build home equity quickly because there is no interest, meaning every payment goes toward the principal on the home (meaning the actual mortgage amount, not interest added to the mortgage). There is no penalty for paying extra or early, either. While home equity can give a homeowner financial stability, there is more to it. In contrast to renting, homeowners invest in their homes when they improve or maintain them. Not only do they keep the value up, but because they are the owner, they benefit from that value. When renting, improvements renters make to the home only benefit the renter while they live there, and the rent you pay gives you no ownership over the place. A friend of Whitney’s learned this the hard way.
“This just happened to my friend,” she said. “She just closed on her house on Friday, her brand new house. She was renting [from someone she trusted], and she had pretty much took down the whole house almost to the studs and redid it because the tenants that were in there before destroyed it so much. It was a labor of love. This was their house. They’re putting all this money into it, all this work, all this sweat equity, and then [the owner] fell on financial troubles because of plumbing issues. She had to come out of pocket with a lot of money, and she decided to sell the house. Now they gotta go and everything they’ve done to this house, they can’t take with them. They don’t get any kind of discounts or anything, nothing. They get nothing out of it. That made it hit home even more so. If it’s my house, and I’m putting something into it, that is forever mine. If I sell, I get the profits from what I’ve done to the house. [When you rent] somebody at any moment can just say you gotta go. If you own a house, and you’re on top of your bills and everything, you can’t just get kicked out. There’s this whole idea of this sense of sanctuary. This is my space. This is my little bubble, and nobody can tell me what to do if I’m on [time with my bills]. Nobody can tell me anything. My mortgage is paid, my utilities are up to date, everything is good, taxes, insurance, all that’s paid, then I’m fine. I have nothing to worry about. Even if I have to let the lights and the water get off to pay that mortgage, and insurance and tax bills, I at least get to keep my house. I can let everything else go and just keep the house, and I still have something. If you get the lights and stuff out on an apartment, the landlord might be asking, ‘hey, whatcha doing? Get out.’ So you never know. It’s just the security of it all, of just having your own house.”
Whitney’s history of renting was brief, but she was motivated to do so because she wanted independence. What she learned was that independence, self-reliance, and self-sufficiency were easier to acquire through homeownership, in some ways. The work you put into your own home is something you get the value of–anything that improves your home improves the value of it.
“I didn’t rent for long, pretty much only in California,” she said. “I had wanted freedom. You think all you want is freedom and to have my own space, and you try to get out of your mom’s house and wanna move into an apartment. You wanna do all these wonderful things. And it’s not like it’s easy, renting and being on your own, but it’s if you wanna clean up the place, change the wall color, if you wanna do some kind of small construction, build in some shelves or something like that, you have to check the rules to see if you can. If you can do it, but then two years from now you move out, you can’t take those shelves with you really. Everything you’ve done isn’t yours. It belongs to them now. It’s increased their value, and they’re getting all the profits out of this.”
After having to move out, her friend then bought a home through traditional home-buying methods. She looked for a home, went to the bank for a loan, and made an offer on it. Whitney got to learn more about that process by talking with her friend. Habitat’s program does require some paper work to be submitted, and there are sometimes questions from Habitat case managers about an applicant’s financial history.
The criteria is sometimes different, however, and the process usually takes a few weeks to approve someone who qualifies (depending on how long an applicant takes to turn in their paper work).
It differs from traditional loan programs because Habitat looks at the ability to pay with the understanding that it will be an affordable mortgage payment, which NOAHH defines as being no more than 30% of the applicant’s income. That affordable payment is income-based, but it is also affected by the cost of building the home. Habitat mortgages usually have a soft second mortgage that covers the difference between the cost of the home and the appraised value of the home. The payment is based on the partner family’s income and the term of the mortgage (usually 20 or 30 years), but the payment also includes flood and homeowner insurance, property taxes, and an annual termite contract. Some of these can change over time. The partner family’s income might also change over time, but that part of the payment calculation is locked in at the time of closing, but acceptance into the program is based on the income the applicant makes when they apply. Figuring all of this out requires a bit of paper work, but the back and forth of a traditional loan application is not often how it works with Habitat. We also do not charge interest, require no financial down payment (instead we ask for sweat equity), and we accept good or no credit. We consider past-due debt to determine eligibility. (If all of this sounds like a lot to take in, don’t worry–our case managers walk every applicant through the process and explain as they go.)
“[My friend] went looking for the house,” she said. “She fell in love with the house. It was great. It wasn’t perfect, but she loved it. She knew all of what she wanted to do with it. She had all her ideas in mind, so they wanted to go buy the house. Then she had to go to her bank to go and get the loan. Next thing you know, she has all these hassles. They want this paper work and they want that paper work. ‘Where’d this money come from? Why do you have this in your account and your statement looks like this?’ I mean, they tore her finance apart trying to find any reason not to give the loan. That’s what it felt like to me. So it was coming close to her closing date, and she hadn’t heard from the loan officer. Apparently the loan officer went on vacation. Someone else was supposed to take care of it, but she did close on time. She got the house, and she was so excited she was in the house by New Years. That’s all she wanted to do. That’s the other trade off. This time issue, you got a little bit more leeway [in the Habitat program]. You don’t have to go ‘We’re doing this in a month.’ You got a nice little year, figuring this out.”
Ultimately, Whitney considers Habitat the right decision for herself:
“I definitely would prefer this way. Especially the whole idea that I get to help build [my house] too. Because [my friend] didn’t get to help build her house.”