PHILADELPHIA — Philadelphia is preparing to launch a city-backed mortgage program by the end of the year that would offer first-time homebuyers below-market interest rates, smaller down payments and no private mortgage insurance, according to Axios.
Mayor Cherelle Parker said at an Axios event that Citizens Bank has agreed to participate as a lender in the One Philly Mortgage program and that the city is in discussions with other banks.
The initiative is intended to expand access to homeownership in a city struggling with poverty, rising housing costs and affordability pressures. Parker told Axios the program is designed to put “people on path to self-sufficiency.”
How Program Works
Under the proposed program, eligible buyers would receive 30-year, fixed-rate mortgages with interest rates 1 percentage point below prevailing market rates. Down payments would be limited to 3%, and borrowers would not have to purchase private mortgage insurance. Instead, the city would create a reserve fund to help cover lender losses in the event of defaults.
Households earning up to 120% of area median income would qualify, according to eligibility details cited by Axios from The Philadelphia Inquirer.
The Parker administration estimates the financing terms could save a buyer of a $200,000 home about $3,400 annually, Axios reported. Actual savings would depend on the loan and prevailing interest rates.
Part of Broader Effort
The mortgage program is part of Parker’s broader $2 billion Housing Opportunities Made Easy, or H.O.M.E., initiative, which aims to build, preserve or restore 30,000 homes. The larger effort would draw on bonds, government funding and city-owned property assets.
One Philly Mortgage is modeled on Massachusetts’ ONE Mortgage program, which has helped more than 22,000 low- and moderate-income households purchase homes since 1990, according to information cited by Axios.
But Kevin Gillen, a Drexel University economist and real estate finance expert, cautioned that cheaper financing alone may not solve the problems facing buyers of older, distressed homes. Unexpected repair and maintenance expenses could put borrowers at risk, he told Axios.
“You don’t want to increase homeownership in the short term if it just increases the foreclosure rate in the long term,” Gillen said.
