Edina down payment assistance program runs out of money as housing market tightens

Edina leaders knew decades ago that not everyone could afford to live in the well-to-do suburb. So they started a program to help people who couldn’t afford a house there.

But now it’s run out of money.

And the nonprofit that ran the program has stopped accepting new applications.

“We’re going to put a pause on this, and we hope it’s just a pause,” said Ann Swenson, chair of the board for the nonprofit East Edina Housing Foundation.

The foundation’s Come Home 2 Edina program helped 183 families buy homes over the past 18 years. But leaders say the very same factors that increased demand for down payment assistance loans also made it harder to replenish the program’s budget.

The program was seeded by the city and funds were supposed to be paid back when people sold their homes. But the housing market slowed down, prices rose and more people chose to stay in place. That means less money is flowing back into the program.

“This is the first time the paybacks have not kept up with the loans,” said Stephanie Hawkinson, Edina’s affordable housing development manager.

Housing advocates say demand for down payment assistance has increased across the state and the nation. Interest rates rose from pandemic-era lows of about 3% closer to 6%. Home prices, rents and insurance rates grew, too, prompting some people to choose to stay in their homes rather than sell.

“As home prices are continuing to increase, incomes are not keeping pace with the level of home price increases,” said Roxanne Young Kimball, president of the Minnesota Homeownership Center. “And it’s making [it] so that there’s a bigger and bigger affordability divide that makes accessing homeownership more difficult.”

Young Kimball said many cities and counties offer down payment assistance programs, and they’re structured a little differently in every place.

The Edina program traces back to the mid-1980s, when city officials established a tax-increment financing district with a goal of ensuring that some homes in the new Edinborough and Centennial Lakes developments would be affordable. They worked with a nonprofit to offer help to some families.

“The fact that the foundation was providing down payment assistance loans to help make homeownership more affordable, I do believe was ahead of its time,” Hawkinson said.

When those initial mortgages came due for repayment, around 2007, the modern Come Home 2 Edina program was formed to help people buy properties across larger portions of the city.

The program lent people up to $110,000, depending on the price of the home they wanted to buy, their income and whether they were the first in their family to buy a home.

The loans could be used on homes selling for up to $515,200. That won’t cover many houses in Edina.

Census data shows the median household income in Edina in recent years has run about $125,500, higher than most metro area cities. City housing officials, meanwhile, say the price for a typical single-family home is now closer to $700,000.

The money used to buy homes through the assistance program needs to be repaid when the terms on the mortgages end or when people resell their homes. But fewer people are selling, and many of the program’s repayments aren’t yet due.

“There was a time when people would buy a new home on average every seven years. Because of the change in the housing market, that may not be happening any longer,” Hawkinson said. “And, so, we’re seeing an increase in demand for this product in order to allow people to buy a home, but we’re not seeing the payoff of the older loans happening. It’s not keeping pace.”

According to the city, borrowers who have benefitted from the program include a police officer, a teacher, a social worker and health care workers, among others.

“These are the people that really help make our community function,” Hawkinson said.

The program helped 25 families buy homes last year, more than twice the number in a typical year. Of them, nine bought single-family homes, 13 purchased condominiums and three got townhouses.

The program helped four people in January, and Swenson said leaders realized “we’re gonna run out of money.”

Leaders said people who already have loans through the program should feel confident their homes are secure, but new applications are on pause.

Swenson said she doesn’t know when the program will be back: “It’s just when we get payoffs.”