WHAT IS A CITY SOFT SECOND MORTGAGE? © 2013 by Wayne D. Lewis, Sr.

More Real Estate posts by Wayne Lewis:

http://makeyourbestoffer.blogspot.com/

 

 

The New Orleans Soft Second program is in full effect.  What does that mean?  Well, for both buyer and/or seller, it has the potential of being a tremendous benefit.

For sellers, it is a great opportunity to sell their home near or at market value. For buyers, it is the tremendous opportunity to increase their net worth. 

The City of New Orleans offers this great opportunity through funds made available through federal funds in the form of what’s called the CDBG fund, or Community Development Black Grant.  These funds, as it relates to buying and selling homes, are made available to New Orleans residents who are first time home buyers.  To be clear, First time home buyers are classified as those buyers who have not titled a home in the last three years prior to applying for a home loan. It is important too, that the purchaser make a loan, as the buyer cannot be a cash buyer.  There are also income limits, as you might imagine.  See link below.

 

http://new.nola.gov/softseconds/

What Should Sellers Be Aware of?

Sellers should be extremely excited at the prospect of selling their homes through the City of New Orleans Soft Second program.  But sellers should also be aware of what they must be prepared to do.  The Soft Second program through approved and trained lenders require that the homes be in move in condition.  That means that in order for a seller’s home to be considered, there are certain minimum conditions that should be in place.  For example:

1. Roof must not have any leaks, proper flashing;
2. A/C and Heating must be in working order,
3. Foundation must be level’
4. Plumbing must be properly working;
5. All electrical wiring must be up to code and no exposed wiring;
6. All provided appliances must be in working order;

The above list is a partial list of possible repairs or issues that may come up in either or both of inspections, other conditions may apply.  The condition of the seller’s home is paramount to making the sale successful.  While the properties are being sold as is, it is possible that a few things may need to be tweeked.  The seller’s home will undergo at least 2 inspections.  One inspection will be the traditional inspection that all buyers are encouraged to make on a perspective new home.  The second inspection, called a HQS Inspection, is required by the City of New Orleans, and is actually conducted by an inspector from the city.

http://www.nola.gov/sitecore/content/Root/PRESS/City-Of-New-Orleans/All-Articles/20120426-MAYOR-APPLAUDS-SUCCESS-OF-SOFT-SECOND-MORTGAGE-HOMEBUYER-ASSISTANCE-INITIATIVE.aspx

 

Providing both inspections are addressed in good time, other conditions notwithstanding, the sale can go by pretty smoothly.  It is to be noted too, that because it is non-traditional home sale, that the 30-45 day window to sell your home, may actually take 45-60 days because of the stringent requirements in place to ensure that the buyers are meeting all aspects of this great program. 

Sellers’ agents can go other pertinent details, as well as go to the City of New Orleans’ website to see how their home may qualify.

 

What Should the Buyer be Aware of?

Buyers have a few hurdles to jumped, but the benefits justify the means.  Here is the great thing about program such as this:  The buyer increases their networth by almost $65,000.  The terms and conditions are in place to meet this objective, but those terms are insignificant compared to the proposed long term benefit.  Here are a few of those benefits:

1. Up to $65,000.00 as a soft second mortgage (go to http://new.nola.gov/softseconds/ for more information).  What that means essentially is, a buyer who only qualifies to purchase a property for $65,000, has the opportunity to qualify for up to an additional $65,000 to purchase a home. 
2. Also, providing other conditions are met, the buyer also has the opportunity to get up to $10,000 in closing cost assistance go to http://new.nola.gov/softseconds/ for more information.  The possibility is that a buyer can get assistance with insurances, paying loan related fees, title costs, and possibly, pre-closing costs such as appraisal, and inspections, where applicable.

Other terms and conditions apply, but it is important for the buyer to be aware of the fact that the day that they get keys to their new home, they have just increased their net worth by a possible $65,000.  The note for the property will be based on the amount that the buyer initially qualified for, in this case, the 1^st $65,000.  The buyer will be required however to pay insurances and taxes based on the whole amount of $130,000.  That cost will be rolled up into a monthly note, that your lender will help you, as a new buyer, to work out.

What should the community be aware of?

The community should be aware of the fact that a house that sells through this program eliminates the high probability of vacant homes on the market.  For the first time home buyer, who would ordinarily only qualify for a lower priced home, the possibility of buying a well-priced home in a stable neighborhood is increased greatly.  Even for those first time home buyers who could may have not been able to buy a home at all, are now, more likely to be able to buy a home in a community that would have otherwise faced abandoned homes, becoming the target of potential criminal activity.

 

While the City’s Soft Second is no panacea of cure for every neighborhood, it offers a  tremendous opportunity for each and every neighborhood to maintain a viable and progressive neighborhood because homeowners are maintaining their homes, and improving the overall quality of life.  This is a good for the community, and this is good for the new homeowner.

 

Highlights of what goes into the Soft Second Program

1. 10 year forgivable loan
2. No pre-payment penalty
3. Buyers must attend a 12 hour minimum home buyer’s training class
4. Homes must be in the New Orleans only, with some areas receiving certain incentives
5. Getting pre-qualified and completing the home buying classes are key to ensuring that the buyer finds the perfect home, because they are ready to move forward.

Drawbacks-The program is notably longer than a standard FHA, Conventional or VA Loan, coming in at approximately 60 days or better to close, for the most part.  Depending on if repairs need to be paid by the seller, and what those repairs may include, the closing could take up to an additional 15 days, but for the buyer, it is great deal.

TIP:  If the HQS (Housing Quality Standards) Inspection reveals any deficiencies, try to take care of them as quickly as possible, and contact the city right away.  The 15 day delay is the maximum amount of time allowed for repairs, so the sooner the seller agrees to make the repairs and completes them, the sooner the HQS Inspector returns, and lifts the hold on the sale.

 

Conclusion-By my experience with the New Orleans Soft Second program, it is a great program for buyers, sellers and the community at large.  It affords buyers the opportunity to increase their net worth.  It gives sellers the opportunity to get the best price for their home, and last but not least, for the community, it is likely to have fewer homes in the neighborhood that vacant and on the market.  The links included here are for informational purposes only, you are encouraged to consult with your nearest Realtor ® or loan officer to discuss how you or someone you know may benefit from this great program.

Other information can be obtained from the City of New Orleans at their website:

www.nola.gov, or by contact Ingrid Raboteau 504-658-4218, Tonya Bernard 504-658-4245, Janice Brown 504-658-4243, Pearl Hammond-Robinson 504-658-4244.

 

Disclaimer-No part of this blog post should be considered as legal or professional advice outside the scope of real estate for the State of Louisiana.  This is not an intent to solicit the clients or agents of any broker. Licensed in the State of Louisiana only.  Your results may vary.