At the start of this year, Danielle Quarles feared that she and her children would be forced to move. The Canadian investor who owned his five-bedroom home on the East Side of Cleveland was planning to put the property up for sale.
But Quarles was not moved. Instead, with the help of a new mortgage product aimed at borrowers in need of relatively small loans, she bought the house from its owner.
“It shows people that I have beaten all obstacles,” said the 24-year-old, who started working as a nursing assistant at the Cleveland Clinic a few years ago and is now studying business administration. . “I was a teenage mother. I dropped out of college. I was on government aid.”
Quarles was one of the first beneficiaries of a Believe mortgage from CHN Housing Capital, the lending arm of CHN Housing Partners. The Cleveland-based nonprofit has expanded its toolbox – with home purchase loans, home repair loans and other offers – with the goal of making home ownership widely accessible and sustainable.
CHN Housing Capital can provide mortgages from $ 20,000 to $ 250,000, but the sweet spot of the program is loans of $ 70,000 or less – this is called small dollar debt which can be hard to come by. .
Since early April, when the product debuted, CHN Housing Capital has received over 500 inquiries from potential buyers. Thirteen customers have completed their purchases or are about to close. And 35 applicants have prequalified for a loan but are still looking for homes.
30-year fixed rate mortgages are available in Cuyahoga and Lorain counties. Buyers must have a credit score of at least 570 and pay at least 3% of the purchase price, although low-income borrowers may use down payment assistance programs to secure these funds.
CHN Housing Capital does not require borrowers to pay for private mortgage insurance, which can increase the cost of a conventional home loan for buyers without a lot of cash on hand.
“Part of what we want to do with this product is make people believe that ownership is achievable,” said Kevin Nowak, CEO of CHN.
Prior to working with a loan officer at CHN, Quarles was unsure whether homeownership was within reach, even at a purchase price of $ 57,000. Although she saved up for a down payment and worked to improve her credit rating, she was refused a first-time home buyer loan insured by the Federal Housing Administration.
Through CHN, Quarles learned that she was eligible for Greater Circle Living, a privately funded incentive program for employees of certain nonprofit institutions in the University Circle region. As a home buyer in Glenville, near the main Cleveland Clinic campus, she secured a $ 30,000 interest-free loan. If she stays in the house for five years and works for a participating employer until mid-2026, she won’t have to repay that amount.
Separately, Quarles took out a Believe mortgage for $ 26,790 with CHN. At the close, she only paid $ 285, she said. Her monthly mortgage payment, including taxes and insurance, is $ 292 – for a house where she was paying $ 750 a month as a tenant.
“I have the opportunity to live comfortably,” said Quarles, who recently installed laminate flooring on the first floor of the house and took her children, Latrice, 7, and Darien Jr., 3, on a trip. in Florida. “I don’t have to live on paycheck after paycheck, and I can do more activities with my kids now. It’s like being taken away from me.”
Housing researchers argue that small loans are a critical tool in stabilizing neighborhoods and building wealth in Northeast Ohio and other places where there are still plenty of cheap homes, but considerable financial and educational barriers to ownership.
As tenants like Quarles become buyers, they won’t just save money. They will also help tackle the cycle of distress in communities where aging homes often change hands every few years, moving from one distant investor to another under the direction of a series of property managers.
In June, Shirley Jones, 66, used a Believe mortgage to buy a four-bedroom house she and her family were renting in the Mount Pleasant neighborhood of Cleveland. She paid $ 61,900 for the bungalow, which was previously owned by a Texas-based limited liability company.
Jones and his son, Donte, and his stepdaughter, Taiesha, paid $ 850 a month in rent. They owe $ 460 a month on the mortgage. But they decided to keep paying $ 850, dedicating the additional $ 390 each month to capital.
“It’s better to pay for yourself rather than someone else,” said Taiesha Jones, a 39-year-old caregiver.
Industry experts see loan officer compensation and banking regulations as barriers for small borrowers, who also face valuation issues and competition from cash-paying investors in low-cost neighborhoods.
“Loan origination costs are largely fixed and recovered either through the sale of the loan or through the distribution of funding and payment for services,” wrote researchers from the Urban Institute, a think tank based in Washington, DC, in a 2018 report. “Small loans generate lower selling prices, margins, and service revenues, making them less economically attractive to lenders. “
Since 2010, CHN Housing Partners has provided small loans, typically $ 10,000 to $ 15,000, to participants in the not-for-profit organization’s long-standing lease-to-own program, which offers low-income families the opportunity to rent newly built houses and, after 15 years, to become owners. .
The Believe Mortgage spans this work, going well beyond the approximately 2,200 homes that CHN has developed. CHN Housing Capital bears the costs of obtaining the loans, using philanthropic money to offset its expenses. The lender will sell the mortgages to banks willing to hold the debt, generating cash to make additional loans.
Huntington Bank is the only buyer so far, but CHN is in talks with other investors.
“We hope to increase this amount to over 100 loans per year,” Nowak said.
Borrowers must complete a first-time home buyer class before closing. They also have access to other RCS programs and services, including home repair loans of up to $ 8,000.
“It seems to me that this is a very important program, especially when you add in support for buyers, financial literacy and other things,” said Frank Ford, a housing policy researcher who has investigated low cost loans in Cuyahoga County.
But, said Ford, “I’m not sure that a nonprofit will have the capacity to meet the scale of needs that exist on the East Side of Cleveland and the Eastern Suburbs. I’m not ready. to let traditional lenders get rid of their own obligations to meet credit needs. ”