At Home on The Greater West Side 021424

February 14, 2024

GROWING COMMUNITY MEDIA

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AT HOME ON THE GREATER WEST SIDE A GCM GUIDE TO HOMEOWNERSHIP

Garfield Park resident Mercedes Pickett shares her homebuying experience ‘I feel like an investor in my neighborhood’

By DELANEY NELSON Special projects reporter

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ercedes Pickett is a West Side girl through and through — so much so that her dog is named Westside. She grew up in Garfield Park, with seven siblings in a home her mom bought. When it came time for Mercedes to decide where to buy her own home, there was no question that she would stay in her community.

“I didn’t want to walk away from such a beautiful place,” she said. “I see the Garfield Park area and the West Side as a gold mine. I just feel more like a stakeholder and an investor in my neighborhood. So, I can work here, I can play here, and I can pray here, because I actually live here.”

Pickett’s homeownership journey began long before it came time to find a realtor and visit properties. When she was growing up, she remembers how exciting it was to see her art hung up on the wall of her bedroom.

“With space comes opportunity,” she said. “To see the freedom a person has when they own the building is something that excited me.”

TODD BANNOR Mercedes Pickett holding a copy of a home buying guide in the living room in the Garfield Park two-flat she owns on Feb. 2.

She saw her mom care for the property and handle the financials associated with homeownership — a road that can easily become rocky, given the unforgiving nature of many loans.

In 2008, Pickett’s mom fell two months behind on her mortgage payment and quickly began to fear foreclosure on her home. With the help of a grant from Neighborhood Housing Services of Chicago, her mom got back on track. She paid off the mortgage in 2017.

Pickett credits NHS with saving her childhood home — and inspiring her own home buying process.

“When NHS wants me to advocate for them, I do it in a heartbeat because they saved my family home and that impacted the trajectory of my life,” she said. “[NHS] understood that my mother can make ends meet, she just got a little bit behind. NHS gave her a lifeline. So many individuals and banks turned her down because they saw

profit behind her missed payment.”

When Pickett decided to pursue homeownership for herself, she took NHS’s eight-hour homebuyer education course.

Then, she worked with a financial counselor to build up her credit and completed a property management course, through which she learned some of the ins and outs of becoming a landlady and offering affordable housing.

When she started looking at homes, she knew she wanted a multi-unit property with a basement and an adjacent vacant lot. She said she experienced a smooth closing process. Pickett moved into her home in 2020.

She now lives on the second floor of her property. A mother-daughter tenant duo live downstairs.

See MERCEDES PICKETT on page B3

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February 14, 2024

AT HOME ON THE GREATER WEST SIDE

GROWING COMMUNITY MEDIA

A brief course on lending What to know when you’re buying a home

By DELANEY NELSON Special projects reporter

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he world of lending can be confusing and daunting. For many folks, so is buying a home. There are a lot of myths about the homebuying process — 83% of homeowners say they were surprised by at least some aspect of buying a home.

A major piece of homeownership is getting a mortgage, which is a loan for buying a house or other property. With some input from Gordon Rice, who has spent 30 years in the banking industry as a lender and is now director of lending services at Neighborhood Housing Services of Chicago, we’ve put together this guide to how lending fits into becoming a homeowner.

“We want to make sure that our homeowners in Chicago and Cook County are taken care of, whether it’s through us or somebody else,” Rice said. “We want to make sure that we are addressing the needs of our community, and we get people into homes that are looking for that in this chapter of their life.”

For many Americans, a home is the biggest purchase they’ll ever make. The payment, however, is not all upfront. Prospective homeowners take out a mortgage to make that purchase,

which breaks the payment into increments over many years. One of the first steps in the process a homebuyer should take is determining a budget: how much they can put toward a down payment and how much they can realistically pay every month.

The connection between home ownership and lending doesn’t stop at a mortgage. Owning a home also gives borrowers increased leverage when asking the bank for a personal loan. This is just one way homeownership can facilitate long-term stability.

What is a mortgage?

A mortgage is a loan from a bank or other lending institution used to purchase property.

Once the borrower pays off the mortgage, plus interest, they own the home outright. There are several types of mortgages for people in different financial situations and stages of life.

In general, mortgages are made up of four parts: principal, interest, taxes and insurance.

The principal is the amount of money borrowed to buy a house. Keep in mind, more money paid upfront on the down payment means a smaller principal.

Interest is the cost of borrowing that money

Types of mortgages and loans

“A” Loan: A term to describe loans with the best possible terms, conditions and interest rate. Borrowers must demonstrate strong credit to be considered for an A loan.

Adjustable-Rate Mortgage (ARM): The interest rate on an ARM will fluctuate based on market conditions. ARM rates usually start low, but once the rate increases, monthly payments will increase, too. When the rate decreases, so will monthly payments. These mortgages are also known as variable-rate loans.

“B” or “C” Loan: used to describe loans or mortgages with less-than-ideal terms and conditions, such as high interest rates and fees. Borrowers with little to no credit history or a history of bad credit are unlikely to get an A loan, but may qualify for a B/C loan. These can generally be classified as subprime loans.

FHA Loan: a mortgage insured by the government and issued by a bank or other lender. This loan type is intended for low-

or middle-income earners who may not get approved for a commercial mortgage. FHA loans require a minimum 580 credit score and a 3.5% down payment, but they tend to come with higher interest rates than conventional mortgages and require borrowers to purchase mortgage insurance.

Fixed-Rate Mortgage: A mortgage with a stable interest rate that does not change.

Monthly principal and interest rate payments will stay the same for the life of the loan.

VA loan: a home loan backed by the Department of Veteran Affairs for U.S. veterans. These loans have a low down payment or none at all — nearly 90% of all VA-backed home loans are made without a down payment.

USDA Loans: United States Department of Agriculture (USDA) Rural Housing Service Loans are available in designated rural areas for low- and moderate-income buyers and are insured by the federal government.

— it generally appears as a percentage of the total amount borrowed. Sometimes, a higher credit score can lead to a lower interest rate.

In Chicago, all homeowners must pay a property tax, with some exemptions available. The statewide average is 2.07% of the total value of a property. Property taxes in Cook County are paid over two installments each year.

Homeowners insurance protects the homeowner from all sorts of things, like damage to their house or theft. Home insurance isn’t required by law, but lenders typically require it as a condition of a mortgage. Mortgage insurance, on the other hand, is usually only necessary for borrowers who put a down payment of less than 20% on their home.

Generally, homeowners insurance and mortgage insurance are paid annually. But, many mortgage agreements allow borrowers to pay insurance and taxes a bit at a time, as if it were a monthly bill. Those payments are saved in an escrow account until the actual bill is due.

This system helps borrowers to not fall behind on payments.

Why do I need to get preapproved?

“A lot of people start looking, they don’t get the preapproval letter ahead of time,” Rice said.

And unbeknownst to them, they fall in love with the property that weekend. A lot of times if there’s multiple people that want to buy the same property, [so] having a preapproval will expedite that process. [Preapproval] shows that they’re a legit buying customer, they’ve already been given their amount of what they can afford.”

When you apply for an actual mortgage, Rice added, you will do so with the same lending institution that gave you a preapproval letter or contract.

How do I decide which lender to work with?

When shopping around for a mortgage, it’s important to determine which lender offers the best terms. Rice recommends working with a reputable company, maybe someone a friend or family member had a good experience with.

Borrowers should avoid loan officers who work on a commission basis, Rice said, because they may not have your best interests at heart.

“All my loan originators are not on a commission basis. They’re salaried. So, their job is to go ahead and not show any favors to anybody, there’s no extra commission to be made outside of just trying to help the homeowner get into the best possible situation for them,” he said.

GROWING COMMUNITY MEDIA

AT HOME ON THE GREATER WEST SIDE

Some other terms to know when it comes to getting a mortgage

Automated Underwriting System (AUS): When a potential borrower applies for a loan or loan preapproval, the loan officer will run their application through an AUS. The computer program looks at information like income, debt-toincome ratio, employment history, credit history, public records, cash reserves and liquid assets to determine whether to approve the borrower for the loan. While automated underwriting is quicker than manual underwriting, the latter can be a good option for individuals with bad credit histories or complicated financials, whom an automated system may be quick to deny.

Commitment Letter: a formal document that serves as proof a borrower is preapproved for a loan. The letter states what amount the borrower is preapproved for, but the letter is not binding. It is often dependent on listed factors, like a second credit check closer to closing and a home inspection. Usually, real estate agents and home sellers won’t consider an offer from a prospective buyer without a commitment letter.

is a major factor used by lenders to determine how much to loan a borrower.

Derogatory Information: negative information on a borrower’s credit report that can be used to turn down a mortgage application.

Examples include serious loan delinquency or frequent late payments.

Four C’s of Lending: The four major factors lenders consider when determining whether to approve someone for a loan.

Capacity: whether the borrower will be able to pay back the loan. This includes income, savings, debt-to-income ratio, existing debt and other financial commitments.

Capital: any readily available money, savings and investments for a downpayment and other fees associated with the homebuying process.

Credit: credit score history and other records of paying bills on time.

Collateral: Lenders will consider the value of the property the borrower is getting a mortgage for, as that property will act as security against the loan. (If the borrower doesn’t pay back the mortgage, the lender could take possession of the property.)

February 14, 2024

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Wait, how do I get a mortgage?

Once you decide you’re ready to seriously begin your home buying search, a major step is to get preapproved for a loan. (Earlier steps include building credit and saving for a downpayment. For our glossary on that, check out last month’s guide: https://ow.ly/szni50QziwS). Below are the six steps of the mortgage process.

Research

How much do you have saved for a downpayment? How much can you realistically spend per month?

Preapproval

Loan application

Once you find a home and put in an offer, then you can go through the loan application process. This will be similar to preapproval, but now you know exactly how much to ask the lender for.

Loan processing

A loan processor will verify your credit and other financial and work history. They will also order an appraisal of the property you’re looking to buy, which will determine the value of the home.

Underwriting

Preapproval is an offer from a lender to loan a certain amount — a.k.a. the mortgage amount they will approve you for.

This is based on information including a credit check, pay stubs, bank statements, tax returns, ID and social security card.

You should get preapproved before finding a house you want to buy. You should also visit different banks and credit unions to see what your loan options are and get the best deal.

“I usually ask [new clients] to either go through the homebuyer education seminar process or preferably, in our lending group, we want to get you preapproved,” Rice said. “So then, when a property is attractive to the homeowner and a future homebuyer, with a realtor, they can go ahead and make that offer if they feel that’s the property they want to purchase.”

You are now a homeowner! You have taken a big step in securing a stable future and creating generational wealth for yourself and your family.

An underwriter will look at the four Cs of lending, determine your risk level and decide whether to approve you for the mortgage. They may also ask for additional documentation.

Approval and Closing

Once you’ve been approved, it’s almost time to celebrate! You will still have to sign final documents and pay closing costs.

“Don’t run out and buy a car or take on any debt until you close on your loan because it will be found out and it will be added to your debt ratios,” Rice said.

Compensating Factors: elements of a borrower’s financial profile that allow lenders to be more forgiving in other areas where the borrower’s qualifications aren’t as stellar. An example of a compensating factor could be significant additional income, like yearly bonuses or seasonal work, to compensate for lower regular income.

Another example is mortgage insurance, which can act as a compensating factor for borrowers with low credit scores.

Loan Officer: the person who takes applications for loans offered by a bank or lending service. The loan officer can answer questions, provide written information explaining loan details, and help borrowers fill out a loan application.

Debt-to-income (DTI) ratio: a calculation comparing debt to income. The amount of a borrower’s monthly debts divided by their gross monthly income (including their housing payment) equals the debt-to income ratio. It

Subprime Loan: credit and loan products — including mortgages — which have less strict approval terms and conditions compared to a typical loan. However, as a compensating factor for the higher risk, subprime products

charge consumers higher interest rates and fees. Many subprime loans are considered to be predatory because they do not appropriately take into account whether the borrower will be able to pay back the loan.

Truth-in-Lending Act: A law that protects consumers against inaccurate and unfair credit billing and credit card practices. This act means lenders must always inform borrowers of all the terms and conditions of their loan.

MERCEDES PICKETT

go to a thrift store, and then have a new relic or new artifact that can fit perfectly into my room, whether it’s a telescope or some Buddha hands or statues. I can have a Chinese [style] privacy divider in a window.

In my bedroom, I put up a big whiteboard, and I write my ideas down. I love writing on pencil and paper but sometimes when you’re in bed, you don’t have that. So, I can just go to my wall and write, and I put “Make the most of your potential” in really big, beautiful colors. It’s really about me having ideas in my own head and my own heart, and bringing them to life.

I was able to get a beautiful, all-black Ger-

man Shepherd named Westside, and I got the gate for him.

I’m walking into each room just reflecting on the space that I have and how grateful I am. I step into a room and it’s not like the thought that I had when I was a kid of, “Oh, this room will be filled with plants and this room will be filled with meditation,” but each room does serve its own purpose.

I really walk around and even now I’m very appreciative that I have the space.

asset for any first time homeowner. That one time, it could be perfect, but if you have a month before closing, there could be some additional things that were changed — you need someone to go in and inspect those things. Everyone has their own specialty. You want someone for your furnace, for your boiler and for your roof. Those three things are top priority. Make sure you have someone look specifically at your furnace, inspect the furnace, the life expectancy of it, and when it was purchased. [I want to] make sure that others understand the importance of inspections and the importance of saving or allocating funds for at least two inspections.

Continued from page B1

About the home:

I have my own office, and that is one of my beautiful spaces where I can create, I can take meetings. It’s all designated to my needs … If your space is not conducive to your needs, it’s going to be distracting.

I also have a beautiful walk-in closet. I worked so hard for this walk-in closet. I have a nice little jewelry chest. I love making clothes, so I have a station for clothes that need repair, clothes I have ideas for. I love thrift store shopping too, so I can

Advice for prospective homebuyers:

Take your time and have thorough inspections. Budget for inspections. I think that’s an

Celebrate!

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February 14, 2024

AT HOME ON THE GREATER WEST SIDE

GROWING COMMUNITY MEDIA

These community leaders hope to tackle lending inequity

By DELANEY NELSON and FRANCIA GARCIA HERNANDEZ Special projects reporters

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ev. Ira Acree, pastor of Austin’s Greater St. John Bible Church, is all too familiar with the experience of being failed by large financial institutions. Now, he’s part of a multi-faith effort to get a credit union to the community.

Acree often tells young people the story of a parishioner who spent 27 years in the same building — only to be priced out when new property owners jacked up the rent. Can you imagine if she spent those years paying into her own property, rather than someone else’s, he asks? This, he tells them, is why you should pursue homeownership.

But more than a century of discriminatory lending practices in areas such as Chicago’s West and South Sides, where Black and brown people were pushed or chose to live, hasn’t made it easy.

Continuing practices Discrimination in lending is not just a practice of the past.

In 2021, the Woodstock Institute found that at the middle-income level, Black applicants in Chicago were denied four times as often as their white counterparts.

A year earlier, reporting out of WBEZ and City Bureau revealed that 68% of dollars loaned for housing purchases went to majority-white neighborhoods; just 8.1% and 8.2% went to majority-Black and majority-Latino neighborhoods, respectively. They found lenders invested more money in Lincoln Park than all of Chicago’s majority-Black neighborhoods combined.

Acree, who is also a co-chair of the Leaders Network, a West Side social justice and faithbased group, experienced a struggle with lending firsthand. He bought multiple properties in 1990, then decided 10 years ago to sell one of the homes, and purchase another.

But big banks wouldn’t help.

“It was like pulling eyeteeth to secure a loan,” Acree said. “I personally know the pain and humiliation of being redlined against. I was able to navigate around and find a community bank that would work with me.”

Michelle Collins, strategic advisor for The Leaders Network and a former community de-

FILE

Rev. Ira Acree

Pastor of Austin’s Greater St. John Bible Church

velopment banker, said discriminatory lending exacerbates distrust.

“As a community development banker, what I learned is that some people right here in the community, they don’t feel comfortable,” Collins said. “They don’t even try to have a relationship [with a bank], because they feel like, ‘people are going to look at me a certain way’ or ‘I’m ashamed of my credit,’ or whatever it is.”

The disproportionate awarding of loans intensifies the racial homeownership gap by keeping the capital needed to invest out of reach.

In 2021, the Chicago City Council passed the Lending Equity Ordinance, which increases transparency and public input in selecting the city’s banking partners.

“If you want to do business with the city of Chicago, you need to be making efforts to serve Black and brown communities,” said Sarah Brune, director of public policy for Neighborhood Housing Services. “Banks should be analyzing who is being denied, look at the demographics of those applicants and say, ‘Are we seeing trends here?’ And identify what they can do about those trends.”

Lack of financial institutions Communities of color don’t just face discrimination in banking – it’s often also hard to even find a bank in their neighborhood.

A 2021 Brookings Institution study found that since 2010, the number of banks in majority-

Black neighborhoods throughout the country decreased by 14.6%. JP Morgan alone shrunk its branches in these neighborhoods by 22.8% between 2010 and 2018.

Without banks, it’s hard to access capital and accumulate savings in the first place.

“So many times, you have banks that are not willing to reinvest to develop the communities where they do business,” said Collins. “It’s important that people [can] be in the community where they live [and] be able to walk over, get to know people, and it’s right there, a resource. You don’t have to go outside. It’s right here for you.”

Instead of going to a bank where they may not feel welcome, Collins said some people may decide to visit a currency exchange or other non-bank institutions, which may be regulated differently or not safe.

Predatory lending The Illinois Attorney General’s office describes predatory lending as a practice that “involves deception or fraud, manipulation of a borrower through aggressive sales tactics, and taking unfair advantage of a borrower’s lack of understanding about loan terms and conditions.” This includes making loans the borrower cannot afford.

If someone needs quick access to capital to pay their bills, for example, they may seek out a payday loan from somewhere like a currency exchange or a title lending company rather than a bank.

In exchange, the loan often comes with high interest rates and exorbitant fees, which can make paying back the loan difficult.

“It’s like walking in an economic minefield.

You’re just walking, you’re just moving and mobilizing, but you’re damaging yourself because you can never get ahead,” Acree said.

In 2021, the Illinois legislature passed the Predatory Loan Prevention Act, which capped the annual percentage rate on consumer loans at 36%. According to the Woodstock Institute, consumers saved more than $600 million in interest and fees on these loans by 2022.

Reclaiming the power: community organizing and credit unions In an effort to financially empower community members, some leaders are working to bring more, and better, banking options to Austin.

COURTESY OF MICHELLE COLLINS

They hope to fill financial knowledge gaps, as well

Michelle Collins

Strategic advisor for The Leaders Network

The Leaders Network Financial, which is part of the Leaders Network, is partnering with Great Lakes Credit Union to open a full-service branch in Austin, which Collins said will likely open in March. Services will include home loans, car loans, business loans and certificates of deposit, among others. A temporary branch is already open three days a week.

Collins pointed out that the branch will offer financial counseling and literacy, and an opportunity for relationship banking, which will be crucial to building the community’s trust as a financial institution. The goal? To provide community members with a “financial partner” — someone with your best interest at heart to help improve your credit, show you loan options, or find grants to help with closing costs, for example.

“You need a financial partner, you need a relationship, and I don’t think it’s wise to wait until you have a need to establish a relationship with a financial institution,” Collins said.

Self-Help Federal Credit Union, which opened last year, is also looking to fill in gaps in banking and create financial opportunity for the historically underbanked West Side.

Collins and Acree hope new banking opportunities will facilitate more homeownership in the area and build wealth for families who were previously denied opportunities to do so.

“Buying a house is not for the faint of heart. I mean, it’s a major decision, a big step. It takes discipline,” Acree said. “But if you’re willing to make the sacrifice, I’m telling you, I promise you, you’ll be smiling in the end.

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