Making mortgages affordable and accessible for first-time homebuyers

Dennis Oshiro, Executive Director, Hawaii HomeOwnership Center

Challenge: Due to the high cost of homes, condominiums can be an affordable alternative for low-income families. But with costly down payments, pricy mortgage insurance and strict FHA requirements, it can be difficult for first-time homebuyers to secure loans for these purchases.



Condominiums are often the primary option for homeownership for low-income families. But most low-income buyers cannot afford a 20 percent down payment and need to secure their loans with mortgage insurance. However, many condominiums in Hawaii do not have the 50 percent owner-occupancy rates required for mortgage insurance.

While FHA loans, with low 3.5 percent minimum down payments, seem like a viable alternative, many condominiums are not FHA approved. Also, FHA’s insurance cost is 1.75 percent of the loan amount, paid in cash at closing or added to the principal loan amount, which amounts to $5,250 for a $300,000 mortgage. Add to that the cost of FHA’s monthly insurance, 0.85 percent or $212.50 per month on a $300,000 loan, and these loans are out of reach for many prospective homeowners. The size of the down payments, monthly fees and requirements often prevent otherwise well-qualified borrowers from purchasing a home.

In 2003, the Hawaii HomeOwnership Center (HHOC) was created to provide support to first-time buyers through education and individual coaching. After a few years, seeing the challenges that homebuyers face, HHOC created the Down Payment Assistance Loan (DPAL), a second mortgage program that eliminated the need for mortgage insurance and created more affordable and flexible financing options for prospective homeowners.

In designing DPAL, HHOC noted that government programs provided attractive incentives but were often only available for a short period. When funding ran out, the product was no longer available. They knew that they needed to ensure that DPAL would be available on a consistent basis, but they did not have the resources to do this on their own.

They needed to find a partner that would accept their limited monies as a reserve fund to cover potential loan losses in exchange for making funding available for DPALs.
HHOC identified University of Hawaii Federal Credit Union (UHFCU), as a potential partner and began to cultivate a relationship with them. Working with UHFCU, they carefully crafted conservative approval standards to make homeownership possible while avoiding potential losses due to borrowers not being able to sustain their mortgage payments. To ensure that they were offering loans with a high probability of repayment, they added a minimum FICO credit score of 700, homebuyer education and savings reserves for the borrower as part of the loan approval requirements.

After arriving at the initial agreement, HHOC and UHFCU needed to work out the challenges of implementing the project. They met frequently during the initial stages of the partnership to establish procedures, roles and responsibilities and address challenges that arose during the processing of the first DPALs. The solid track record HHOC established with UHFCU since has provided the foundation for a second agreement to further increase their funding limit with HawaiiUSA Federal Credit Union.

Since the inception of DPAL five years ago, HHOC has assisted 83 families into homeownership. There have been no 30-day delinquencies in their loan portfolio or in those with their partner credit unions. All the borrowers are paying their loans on time. In addition, eight of their loans were paid off early or refinanced, making additional loan capital available and reinforcing the notion that educated borrowers can plan ahead to address and repay their DPALs.

“It only took me one month to find a condo with this program, whereas with the FHA loan program, my realtor was hunting for nine months with no success,” says Joanne Lui, one of the first DPAL borrowers.

The combination of educating the borrower to prepare them for sustaining their home and mortgage payments, establishing strict qualification criteria and building partnerships to leverage our funds have made DPAL possible and still available to this day.

Through this project, HHOC learned:

1. Trusted relationships and collaborations are needed to partner on an untested project
2. Conservative approval criteria are important to establish the partner relationship and ensure the financial success of the project
3. Financial programs need to be available and offered on a consistent basis
4. Continued investment in the relationship with the partner is critical to the project’s success and continuation and expansion of the project.