The Best Gifts Come in Small Packages
How Fahe’s MicroMortgage Program is Reimagining Traditional Home Lending
& Breaking Down Barriers to Homeownership
In many parts of the country, families can pay more for rent than the combined monthly costs of principal, interest, tax, and insurance payments required to own a home. While many of these families certainly prefer the flexibility and mobility that rental options provide, many others undoubtedly turn to costlier rental agreements over the wealth-building potential of homeownership due to financing barriers and a lack of access to mortgage credit. For those residing in rural, economically isolated and underbanked communities, securing cost-effective home loans can be particularly challenging, even when home-seekers are able to find a quality home that they can afford.
Under traditional mortgage practices, most commercial lenders have little incentive to make small-principal loans under $100,000. A mortgage’s profitability for a conventional bank is usually tied to its interest revenues, which are assessed based on a certain market-defined percentage rate of the total amount of the loan. Smaller loans carry less interest-based revenue potential, and when compared against the bank’s fixed costs of researching the borrower’s creditworthiness, underwriting risk, and processing loan documents, these low-principal loans are often dismissed as being unprofitable for the lender. The unavoidable consequence of this single-dimensional profitability analysis in determining whether to issue a prospective borrower a mortgage loan often leaves disadvantaged households with few, if any, alternative financing options to purchase reasonably-priced homes.
Fortunately, Fahe Members’ close relationships within their local communities and trusted exchanges with hometown borrowers allowed them to detect and identify this recurring financial obstacle. Fahe was able to bring these relationships to a national partnership with Homeownership Council of America and the Urban Institute to compete for a grant from Access Ventures’ Reconstruct Challenge—a national competition that awarded three winning teams funding for innovative programs designed to help their housing-insecure neighbors. Fahe and our partners developed an experimental new mortgage product, known as a MicroMortgage, to explore the viability of small-dollar mortgage loans of $100,000 or less for borrowers in the Louisville, Kentucky and Southern Indiana markets. The Urban Institute provided research and evaluation, while Fahe sought to make the loans and HCA to provide technical assistance.
The proposal suggested that Fahe could provide lower-income homebuyers with small-dollar mortgages by reducing the costs and fees of originating loans and using alternative models of credit underwriting. The concept proved to be persuasive, and Fahe was awarded the resources needed to launch the MicroMortgage program.
Luckily for Heather VanDuzen, the Fahe MicroMortgage program arrived just in time to aid her in her homebuying journey. Before seeking to relocate to the Louisville area to live closer to her daughter, Heather resided with her mother in southern Utah. A single, retired mother living on a fixed income herself, she knew she’d need stable and affordable financing to access her next home. In her search for a mortgage to match her potential housing options, she stumbled across an online promotion on realtor.com for the Fahe MicroMortgage program. After doing some research, she connected with Fahe’s JustChoice Lending team to begin the process of applying for a home loan and ensuring her compliance with the terms and requirements for obtaining a MicroMortgage.
Working with the JustChoice team, Heather continued to scour home listings in her prospective new communities trying to find the right fit. While some housing options appeared hospitable and seemed to fall within her price range, home inspections revealed costly and sometimes even unsafe foundational issues. Other listings boasted clean inspections and refurbished interiors, but their price points were unaffordable or they fell outside the boundaries of her target geography. Her search dragged on for months, and although the quality-control requirements of the MicroMortgage program could feel onerous at times, the extra scrutiny it required for evaluating a prospective home’s safety and long-term livability helped steer Heather clear of several would-be pitfalls. Throughout the process, JustChoice Lending agents stood by Heather’s side to guide her through the program parameters and offer additional information and amended loan approval letters for curious listing agents.
Finally, after an exhaustive search, Heather found a home just across the Indiana state line that she knew was perfect for her and her sixteen-year-old son. She decided to put an offer on the house and was overjoyed when she learned that it had been accepted. Even more to Heather’s excitement, Fahe’s MicroMortgage solution helped her access a line of credit that covered the pricey costs of the home’s down payment, helping her avoid the financial strain of trying to scrape together enough savings to overcome that front-end barrier to purchase.
“It was such a blessing,” Heather said of the MicroMortgage program. “I would not have been able to come up with a down payment and all of fees required for a traditional conventional loan.”
To her relief, the house passed inspection and she was able to close on the purchase of her new home. In November, Heather and her son moved to their new home in Indiana. She’s currently paying a budget-friendly monthly mortgage for her new four-bedroom, two-bath house. In fact, Heather recounted how two of her neighbors are paying twice as much in rent each month for homes that are comparatively smaller in size.
Heather said she and her son are both happy in their new home and she’s thrilled to be living closer to her daughter and granddaughter. She credits the MicroMortgage she was able to obtain through Fahe for making her American Dream a reality. “All I wanted was my own little place … I didn’t have my heart set on anything in particular. I just wanted a safe place to finish raising my son,” she related.
With investments like these, the Fahe Network and JustChoice Lending are finding new ways to bypass the limitations of conventional commercial mortgage markets and bring families from all walks to life to their new homes. Going beyond the traditional market forces that have incidentally overlooked so many of our disadvantaged rural communities requires an intentional, deliberate approach and a mission-driven commitment to expanding opportunity to all our neighbors. The MicroMortgage program is just one way in which Fahe, our Members, and dedicated JustChoice mortgage experts work to bridge homeownership gaps every day to help families access good choices, build wealth, and achieve their American Dream, no matter where they live.