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 13 is about pre-closing and closing. For previous parts, click here: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, and Part 12.
Toward the end of every homeowner’s time in our program, they come to a pre-closing meeting. Closing is when they officially buy their home. Pre-closing is a meeting where they go over a small list of things they will need to understand for homeownership. About 30 days before closing, homeowners sit with our Family and Mortgage Services Director. Sometimes, if some homes are finishing roughly the same time, multiple partner families will be present at the meeting. Whitney’s meeting included Marty and Scott, two other recent homeowners.
“It was just like, ‘all right, here’s this folder, look through it.’ It’s a loan application that’s like 6 pages. All this information. I’m like okay I gotta refer to this, I gotta pull up phone numbers asking about previous jobs. It’s like man, I don’t even remember the phone number from my last job. I had to look up the last address I lived at. So it was a lot of information. Of course all of it was either in my house or with me cause I had my paystubs and bank statements. They told me everything I had to bring. I just had to bring bank statements and my last two paystubs,” said Whitney. “Some of that I had sent in beforehand, but I still brought in all of it. It’s this big ole loan application, all this paperwork, and I’m double checking to make sure I got all of it right. And she says, ‘Here’s this big old packet of stuff you have to sign.’ This will give me an idea of what closing will be like. Which that wasn’t even that bad. It’s probably like 20 signatures. They were asking, ‘Are your hands tired yet?’ ‘No no, lets keep going.’ Closing is really gonna be two hours long. Oh my word. At least it’s just one more day. And they give me copies of the documents ahead of time, so I’m not sitting there, holding everybody up reading legal stuff, because when it comes to legal stuff, it is another language. It is another language, so I gotta sit down with that eventually, so I can be prepared.”
The meeting covers the loan application, loan servicing, what to expect at closing (that it’s a one-hour meeting, what to bring, etc.), predatory lending, comparisons to traditional lenders, and the warranty agreement. This probably begs a few questions, so let’s cover these quickly:
* The loan application differs from the partnership application. When people join our program, they apply for partnership. When they reach the end, they fill out a loan application. Because NOAHH has already covered their ability to pay in the original partnership application, the loan application is generally not going to be rejected. And since partner families keep in close contact with their case managers throughout the program about the financial situation–changes in income, loss of job, new debts–any problems are usually addressed beforehand. The reason the loan application waits until the end is because there are laws requiring that closing must occur a certain amount of time after the loan application is submitted, specifically that an updated financial verification must take place within a certain time limit of closing. If the loan application happened at the start of partnership, closing would not fall in that time frame.
* Though NOAHH is the lender–the money for the mortgage comes from us–Fidelity Bank services the loans for us. This started in 2003, when a board member realized that a bank with multiple locations would be more convenient a place for partner families to deliver their payments than NOAHH’s office. They have provided this service for free for 14 years.
* Predatory lenders are organizations or businesses that offer money quickly but with high interests rates, hidden fees, and excessive penalties. When someone becomes a homeowner, as an owner of property, it goes on record that they are paying a mortgage. Some lenders will send unasked for mail with various offers on mortgage insurance and offer financial services, and some of these are predatory. NOAHH warns about and gives details on how to avoid predatory lenders and solicitations to help protect our partner families.
* There are several warranties involved in the process. There is a five-year builder’s warranty that covers the roof system, floor system, and foundation, and a two-year warranty on the electrical, plumbing, and HVAC systems (that is, the central heating/air system). There are warranties on every appliance provided (Whirlpool donates a refrigerator and stove for every Habitat home, and each house has a water heater) and parts of the HVAC are covered by their manufacturer. Finally, there is a 60-day warranty for anything the homeowner might have missed on their “punch list,” which is a list made during their walkthroughs of the completed home, noting any small details that need to be addressed before they move in.
“Well, it covers certain things,” Whitney said. “The houses are not perfect, but they try with site leaders to keep it as perfect as possible. But there is bound to be something they missed, something they should touch up, something that wasn’t finished. So you do a final walk-through. On the outside, a board may be missing a nail, and you can miss that on the walk-through. So you get 60 days to do an extended punch list and say like ‘Oh now that I see it, maybe the inside of the door does need to be repainted.'”
With every house, the punchlist is a normal part of the process that ensures nothing was missed during construction. While NOAHH’s site supervisors are meticulous in completing each house, some minor issues do occasionally crop up.
The monthly payment for NOAHH homeowners includes the mortgage payment (which is just principal and no interest), property taxes, homeowner’s insurance, flood insurance, and an annual termite contract. A savings account called an escrow for these items is set up a Fidelity. This is a budgeting tool that allows the homeowner to save for bills before they come due. Fidelity pays these bills out of the escrow account as they are due. The payments vary slightly, as taxes and insurance can differ from house to house, and the mortgage payments also differ based on the length of the mortgage (usually 20 or 30 years) and the income level of the homeowner. A significant portion of the monthly payment goes directly to principal (for Whitney, principal is about 63% of her monthly payment). The rest is for insurance, taxes, and termite treatments. NOAHH tries to make the process go smoothly for every homeowner.
“It felt right,” Whitney said. “I had been trying to do to the math, trying to figure out what the note was going to be. Like there’s no way it’s gonna be a $500,000 house. But what it was is really valuable. They’re out there selling houses for that much that are smaller and need work. When I walk into mine, I really didn’t have to do anything to it. I just chose to. Through all of my house hunting before this, just look what I got with no interest. It’s amazing. And my grandma’s insurance coverage for her house is like half of mine, and somehow she’s paying more than I am. I gave my mom the list, and I’m like ‘Shop around. You call them.’ It was all kind of spoonfed in a way. I didn’t have to do any research. ‘Here’s your homeowner’s insurance, here’s your flood insurance, we got your termites covered. Here’s your package. Read it, sign it, bye.’ I showed up to pre-closing, and it’s like ‘Here’s your insurance. You don’t have to go with them.’ And I’m like ‘Uh that’s cheap. I’m gonna go with that.’ And the mortgage was a 20 year loan. All this time I thought it’d be a 30 year loan. I showed my mom the numbers, and she’s through the roof. She is through the roof. She said, ‘Girl your house is gonna be paid off in 20 years.’ I won’t even be retired yet. Sunday we went out looking for a new dining room for her in Kenner. She’s saying, ‘Shoot we can have that loan paid off in 15 years if I have something to say about it.’ I know how amortization works, and I can put more to principal every month if I want to, just put up a couple of hundred. Take thousands out of my savings. Wouldn’t that be something if I could take years off my mortgage?”
Amortization refers to paying down debt on a schedule. Disclosure packets are documents that are required by federal law to be sent to the loan applicant three days after the application is submitted. The disclosures inform homeowners of facts about homeownership law and the mortgage the homeowner will have, and they verify information about the homeowner. Working in loan processing at the bank, Whitney has some insights into how other mortgages compare:
“Say they’re paying $500 even for principal, it’s like $200 is going to interest,” she said. “It feels like that at least. I think that number may be actually kind of close. It seems like it would be that much if it’s between 4 and 6%. But I guess most people don’t know it’s 4% of the remaining balance. It goes down eventually, but it’s not like its 4% of that month’s payment. They could end up spending pretty much just as much to interest every year as they do to principal. And it’s like ‘Man how do you pay a 30 year loan when you’re paying so much to interest?’ It’s ridiculous. But I don’t have to worry about interest, and I’m really excited about that part. Once I saw my closing disclosures and everything, I’m reading through it. We deal with closing disclosures at work all the time but I’ve never actually sat down and read them. I actually compared other people’s closing disclosures. One of them, their house was $150,000 and the interest was ridiculous. I’m thinking man if I had gotten the house that was in Gentilly for $151,000, that’s what I would be paying to the bank. Wow. So this is such an opportunity. Especially for so many people who feel like they have to rent forever. Imagine your rent bill went to your house. That’s amazing.”
The soft second mortgage allows Habitat to sell their homes at an affordable rate and to protect the value of the property and Habitat’s financial investment. With Habitat mortgages, the soft second mortgage is forgiven over time if the homeowner lives in the house. If they sell it or move out, they have to pay off the soft second mortgage. Whitney plans to remain in hers:
“I’m staying in the house,” she said. “I’m thinking 20 years from now I’ll be 48 years old. I’ll be five years from thinking about retirement. So I can retire and just live off my 401k and my IRA. I’ll be sitting out on my porch people watching just like we were doing the other day. We actually sat on the steps for the whole two hours the Cox guy was there. We sat on the steps and watched people and made guesses if they were going to run the stop sign. We had a blast. I’m actually trying to pay off the first mortgage before the 20 years, just so I can have that off my back. The sooner I get it paid off, the better. It’s wild to even say something like that.”
About a month after pre-closing, Whitney attended her closing to sign the official documents transferring the home to her and setting everything up.
“I was panicking a little bit,” she said. “A little anxious. The closing went faster than I expected. Everybody joked about, ‘Oh your hands are gonna be hurting from signing too much.’ My hands actually hurt more from the pre-closing, filling out that loan application. I had already gotten the copies beforehand [for closing], and I was able to read through everything. So once I get to closing, I’m like ‘Yeah, that says the same thing except with my name and address on it.’ It was so streamlined; it was perfect. I thought leading up to it that I would cry. I thought I would finally cry the moment I got the keys. It didn’t take that long. I cried as I was signing the mortgage. My dad came with me as moral support, and I kept looking at him like ‘You got questions? No? Sign the next one. Questions? No, sign this one.’ And then walking out the building afterwards to the car I’m like ‘I just bought a house. A whole house’ the whole way home, just like the day at the open house, I’m like ‘I just bought a house today. Oh my gosh. What have I done?’ But then it was, ‘All right, now for the hard work.’ I had on a dress, looked all cute for the closing. I needed some shorts on, so we can get to work [moving in].”
Her dad wasn’t sure about the program at first, but Whitney convinced him once she showed him the details of the program.
“In the beginning, he was more skeptical than I was,” Whitney said. “Especially when I tried to break down how the loan itself would work. He was like well ‘How are you only paying this?’ I’m like ‘Calm down! Some kind of way it’s gonna work. I haven’t signed any papers yet, it’s fine.’ He just had a lot more questions, like I would try to answer them and then he’d have another questions I don’t know the answer to yet.’We’ll get to there when we get to the end, let’s find out.’ In the beginning we just talked about the maximum it would be, but we don’t talk about the specifics yet because we just didn’t know. He had another question that I wasn’t 100% sure. Probably about how to fund it. I answered that since then. He was just so unsure. But now that he’s seen the house, and now that I actually told him the actual numbers it’s gonna be, it makes sense. He’s a mathematical person. He’s gotta put numbers to everything. Once I was able to put the numbers in front of him, he was okay with it. Even I checked the math and I didn’t trust it. It took a little more convincing for him. ‘They’ve got a house right here that’s selling for $151,000, and a house down here and all you have to do is put this down.’ And I’m saying, ‘But do they have no interest though?’ You can’t beat no interest. And it is a brand new house. Brand new everything. I don’t have to deal with ‘What if the foundation is cracking?’ I don’t have to deal with that. It’s just nonexistent problems. I don’t have to go through that traditional mortgage process. Seeing it from the inside out makes it worse. It made it so simple.”