Loan prequalification next for Aspen housing program
October 25, 2010
ASPEN – Starting next year, individuals who want to enter lotteries with the hope of winning a chance to buy a worker housing unit in Aspen or Pitkin County will have to prequalify with a lender.
It’s a step housing officials currently recommend; soon it will be required, said Cindy Christensen, operations manager with the Aspen/Pitkin County Housing Authority.
“Beginning next year, any new bidder has got to provide a prequalification letter,” she said.
Already, people interested in entering lotteries for the sale units in the housing authority’s inventory must submit a packet of financial information, including their latest tax return, on an annual basis. Now, when that packet comes due, the prequalification letter from a lender must be among the documents.
The prequalification process will reveal, for example, problems with a prospective buyer’s credit history, so they can get it cleared up before they win a lottery and attempt to secure a loan.
“It delays closing. We’re seeing it happen more and more,” Christensen said.
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In addition, the housing office hopes prequalifying with a lender will give people a better idea of a do-able price range for a housing unit, given their financial circumstances, so they’re not bidding on units that are out of their reach.
Worker housing is divided into categories, each with a price range that corresponds to a buyer’s income and asset level. The housing office has not prohibited people who, for example, have a Category 2 income from bidding on a Category 4 unit, though it has been discussed.
“Right now, we’re not going to say you can only get a loan for this [amount] so you can’t go for that unit,” Christensen said. “We’re not going to do that.”
That’s because some buyers have access to funds that aren’t reflected in their financial information – such as help with a downpayment from a family member, she said. And, some higher-category units still come up for sale at relatively low prices because the starting price when the unit was sold for the first time was so low. The price of deed-restricted worker housing appreciates by a limited amount.
To help prospective buyers figure out what they can afford to spend, the housing office also hopes to produce a brochure that helps individuals analyze their financial resources and spending habits. The idea, said Christensen, is to help them realize that they may have to cut things like dining out and vacations from their household budget if they buy a unit that is beyond what they can comfortably afford.
“So people can say, ‘ooh, maybe we don’t want to go for that unit,'” she said.
Banks have tightened their lending practices for buyers of worker housing, just as they have for everyone else, Christensen added, but a loan for a housing unit remains something of a “no-risk” proposition for lenders.
If a unit goes into foreclosure, the housing authority buys it back. Otherwise, the bank could sell the unit on the free market and it would be lost as housing that is set aside for qualified local workers.
Foreclosures on affordable housing do happen, Christensen said.
“It doesn’t happen a lot, but we’re seeing it happen more often than it used to,” she said.