Twin Cities Habitat for Humanity is best known for using saws, hammers and sweat equity to build dozens of houses for working-class families every year.

To double its homeownership goals, the nonprofit is using a new tool: a mortgage program aimed at helping those who want to buy an existing house but who don’t earn enough to qualify for a traditional mortgage.

“The goal is to serve more families, to reach out and serve people who are caught in the middle,” said Chris Coleman, executive director for Habitat. “Those are people who may not have quite enough income to borrow through a traditional lender, or those who might have some credit issues that might be a impediment.”

Habitat entered the mortgage business two years ago, but with house prices at record highs and mortgage rates on the rise, the group is expanding its outreach efforts in hopes of reaching families who have been priced out of homeownership.

It’s a challenging time to be an entry-level buyer with little cash and a below-average income. There’s a scarcity of houses affordable to first-time buyers, so competition for those houses has been fierce. Houses priced from $190,000 to $250,000 on average are selling in little more than a month.

That means buyers are outbidding one another, pushing house prices to record highs. Every year the price of those starter houses has increased upward of 7 percent. At the same time, mortgage rates have increased. Though they are still within a percentage point of all-time lows, even modest increases are eroding buying power for people who are already on the edge of qualifying for a mortgage. The situation is especially difficult for renters who are also facing a shortage of options and rising rents.

LaShonda McGowan is an X-ray technician who has been renting an apartment for herself and her three children. With less-than-perfect credit, she had been denied several times for a mortgage.

“It has been a very frustrating journey, being a single mother with now three children and little-to-no financial support,” she said. “I kept my faith in God pushing toward this goal.”

She also signed up for the Habitat program and focused on cleaning up her credit. Borrowers in Twin Cities Habitat’s open market program typically earn over $50,000, but can’t earn more than 80 percent of the area median income. They must participate in a homebuyer’s counseling program and have some cash in the bank to help pay closing costs and provide a financial cushion.

These low-interest mortgages — the rate is currently 3 percent — are part of a broader Habitat initiative called the Open Market program, which is aimed at expanding the ways it helps people buy homes.

After Habitat launched its open mortgage program for existing homes in partnership with other lenders including Sunrise Banks, Bremer Bank stepped in and offered to buy the mortgages from Habitat, which functions as the underwriter. Last year Bremer — which is jointly owned by the Otto Bremer Trust and Bremer employees — said it would purchase up to 500 below-market Habitat mortgages over the next four years.

“This is a great marriage of Habitat and Bremer, which are both trying to carry out our mutual goals of serving more families,” Coleman said.

Bremer enables Habitat to help far more families than it might otherwise. Because Habitat is behind on its origination goals, the group is launching a marketing campaign aimed at letting would-be buyers know its mission isn’t only to serve those who are able to participate in its sweat-equity program and that there’s plenty of mortgage money available.

Cathy Lawrence, Habitat’s vice president for resource development, said part of the group’s plan is to reach out to human resource departments at local employers.

“Because stable housing means a stable workforce,” she said.

The organizations are also particularly interested in serving communities of color and working-class families that might otherwise be shut out of homeownership.

“These are folks who are working in our hospitals and in our schools,” Coleman said. “If we can create pathways and more opportunities, we can make a dent in the homeownership disparities.”

Megan Ryan of Minnesota Housing said the program is particularly important because it offers lower-income buyers in the metro area another financing option for homes that don’t need significant repairs.

Since the Great Recession, working-class families in the Twin Cities have had an especially difficult time transitioning from renting to homeownership because mortgage underwriting standards have become more stringent.

After living in a cramped apartment and thinking that she would be shut out of homeownership, McGowan was able to buy a four-bedroom, two-bathroom house in Cottage Grove that has come to mean many things to her family.

“It’s a safe and secure environment for my children,” she said. “And there’s relief knowing that I’m investing into myself by having my own property instead of someone else’s, but most of all there’s pride in beating all the odds that were against me.”


Correction: A previous version incorrectly described the income limits for Habitat for Humanity’s open market mortgage loan program.