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NEW ULM - First-time homebuyers will still be able to take advantage of the New Ulm Economic Development Authority's (EDA) Homebuyer Assistance loan program, but it will likely see an update.
Tuesday, the EDA held a work session to review its Homebuyer Assistance program. Since the start of the year, the EDA board has begun reviewing each of its loan programs to determine which need to be updated or outright eliminated, based on recommendations from a consulting group.
The EDA first began offering the Homebuyer Assistance Loan Program in 2019. The program offers zero-percent interest deferred loans of up to $10,000 to help first-time homeowners meet down payment and closing cost requirements. Payments to the loan principal balance will be required at the end of five years and the term of the loan is 10 years.
Eligible borrowers must be first-time homebuyers, must be a resident of New Ulm and work at least 32 hours a week in New Ulm in addition to having a positive credit history and obtaining a fixed-rate first mortgage.
Every year since 2019, the EDA has allocated $50,000 to the program. The program is a first-come, first-serve program.
At the start of the work session, EDA Chairwoman Michelle Markgraf listed the main points to consider with the homebuyers loan. She said there was a concern the loan was not being administered equitable because it was offered first-come, first-serve, instead of based on who has the greater needs for the funds. There was a question of whether the loan should be income-based.
Other concerns were that the program did not resolve the demand for housing; the max loan amount of $10,000 was too low and the program was not targeting essential workers for New Ulm.
City Manager Chris Dalton said one of the reasons the program is first-come, first-serve rather than setting income limits is because there are already existing programs for low-income families.
He said the idea behind the homebuyers loan was to target "the missing middle." This is the demographic of people who make too much money to be considered low-income but not enough to be high-income earners.
Dalton said New Ulm's Homebuyer loan program was probably one of the only loan of its kind to not have an income limit.
Mayor Kathleen Backer questioned whether the program eligibility should be adjusted to allow applicants who live outside of New Ulm. Under the current requirements, only applicants renting in New Ulm or living with their parents in town would be eligible. The work requirements also prevent applicants who work remotely for companies not based in New Ulm.
EDA Coordinator Heather Bregel said originally the program was intended for people who graduated from a New Ulm high school. The idea was to give recent graduates in the New Ulm community an incentive to stay. However, there was a debate on whether this would apply to Minnesota Valley Lutheran (MVL) high school, which is outside New Ulm city limits. It was decided to expand eligibility to anyone still living in New Ulm.
Bregel said she personally would like to eliminate the residency and work requirement. She argued that if someone is willing to move to New Ulm because they got a job, they should have the opportunity to use the program.
There have been people turned down for this loan because they did not meet the residency requirement and that meant a home in New Ulm was not purchased.
As for the work requirement, Bregel said it should not matter if a person works in Courtland, but wants to live in New Ulm.
"They are still going to shop here and buy groceries here," she said. "We want to help New Ulm employers, but we want to help our other businesses by having them shop here."
Markgraf was not sold on how the program economically benefited the community. She wanted the board to answer how the program moves the economic needle for New Ulm.
She wanted to know how helping five or six first-time homebuyers purchase a home in New Ulm each year helps the community economically. She argued that with demand for homes already high, was a loan program needed since someone was likely to purchase the home without the program?
Bregel argued that because this was a first-time homebuyer program, it was helping young families get homeownership. A young family is likely to have young kids that would help school enrollment. The younger family would be of working age that are helping local employers.
EDA member Andrea Boettger believed there was a need for a first-time homebuyer program, as rising costs put homes outside the reach of many young people.
"Anything that we can do to support [homeownership] in our community, I think, will bring a return on our investment, and keep these families here, which is what I think we want," Boettger said. "A family is much less willing to leave the community if they own a home and are establishing wealth than if they are renting."
Backer agreed that a younger homeowner would have greater opportunity to contribute to economic development than some of the senior homebuyers.
The board did agree by consensus that the residency and work requirements should be removed from the program.
The board also agreed that the loan limit needed to be raised. EDA board member Mike Lieb said $10,000 loan limit was too low considering the rising cost of homes.
It was suggested the loan cap should be around 5% of the purchase price of a home. With many homes going for more than $200,000, a cap of around $12,500 was considered more reasonable.
Another adjustment to the loan was to giver borrowers an incentive to pay off the loan quicker. The loan would maintain a zero-percent interest rate for the first five years, but for years six through ten, the interest rate would be raised to 3%.
Board member Lindsey Henn said it could give borrowers an incentive to pay off the loan faster. It would also help replenish the loan program quicker.
The board considered placing an age cap on the program to keep its use with younger people, but Lieb suggested keeping it simple.
He felt the first-time homebuyer requirement would keep skewing younger and made it simpler to understand.
Backer reminded the board that if they needed to change the program and add an age cap, they could.
As the discussion took place during a work session, no official change was made to the program.
Staff will bring back a draft of a revised Homebuyer loan program at a future EDA meeting.