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Self Help Builder News March 2012 Volume 5 Issue #1 >
Food stamps as supplement to income
By Claudia Shay, executive director, Self-Help Housing Corporation of Hawaii
Leilani Weldon, a single mother of two small children, has worked as an educational assistant for the Department of Education for the past six years. She has a limited income of $28,208 per year, and relies on her food stamp benefits to make ends meet. Ms. Weldon has very limited debts, and a FICO score of 764, which is a testament to her ability to manage her household budget very well. Ms. Weldon has been a client of the Self-Help Housing Corporation of Hawaii (SHHCH) since 2000 and dreamed of becoming homeowner. It is only by including her food stamp benefits that supplement her income by another $4,740 per year that she is able to qualify for the USDA-RD 502 Loan Program. Without including the food stamp benefits, her front end debt/income ratio would be 35 percent, and she would not qualify for the RD 502 Program. 
Misty Verdadero, a single parent with three children, works at Hawaiian Airlines. She has almost no debts, and a FICO score of 723. Ms. Verdadero was looking forward to improving her family’s living situation by becoming a homeowner in the Ma’ili Self-Help Housing Project III. With food stamp benefits, Ms. Verdadero’s total income is $33,855.39 per year, and with debt/income ratios of 28.58/29.48, which enables her to qualify for the RD 502 Loan Program. Without the food stamp income, her debt/income ratios would be 36.55/37.71 and she would not qualify for the RD 502 Program.
Joanna Paman, a single parent with four children, has worked as a public safety aide with the Hana Police Department since March 2009. Ms. Paman and her four children live in a crowded, sub-standard house with extended family, and want to improve their living situation. Ms. Paman’s annual income without food stamps is $31,608. If she counts the food stamp benefit, her annual income increases to $39,510. With the food stamp benefit, Ms. Paman qualifies for the RD 502 Loan Program with a debt/income ratios of 26.60/26.60. Without the food stamps counted her debt/income ratios are 33.71/33.71 and she wouldn’t qualify for mortgage financing. With the change in the RD directive allowing food stamp benefits of up to 20 percent of the annual income, she will be able to qualify for the Helani Gardens Self-Help Project. Since this self-help project is the first affordable housing project built in Hana for the past 35 years, this is probably her only chance to become a homeowner.
SHHCH, along with other grantees around the country, work diligently to qualify 40 percent of their clientele whose incomes fall below 50 percent of the area median income for RD 502 loan as required by RD guidelines. Without counting food stamp income, it is very difficult to qualify very low-income clients, even if they have limited debts and very high FICO scores, as illustrated by these examples. If very low-income clients have low debts, and good credit, then they are managing their household budgets well, and will likely be responsible in paying their mortgages. It is clear those families with limited income who meet debt/income ratios, and have good credit, are motivated to improve their living situations, and will continue on this path. This drive to improve their living situations also translates into good candidates for participation in the self-help housing program with its rigorous labor requirements.
When RD rescinded the provision that food stamps could supplement the incomes for very low-income applicants, several of SHHCH’s clients were affected. Most were female, single parents, who were supporting their families without child support. These were individuals with the motivation and resilience to support their families regardless of the hardships, and were excellent candidates for the self-help housing program.
To recruit very low-income clients, SHHCH undertakes an extensive outreach program, and partners with nonprofit agencies serving low-income families and minority households. SHHCH also has a very successful partnership with both the State and County Family Self-Sufficiency Programs in their respective Section 8 Housing Programs. Families who already budget their incomes will more likely qualify for mortgage financing than those who aren’t. (In Hawaii, Section 8 funds can also be used for homeownership.) Therefore, SHHCH is able to use the Section 8 homeownership assistance payments for the repayment income; supplementing a very low-income family’s income, and enabling them to qualify for financing. Qualifying very low-income clients who participate in the Family Self-Sufficiency Programs is a win/win situation for both SHHCH, and the partner agency that gets credit for homeownership placements.
To qualify very low-income families for RD 502 financing, SHHCH also grosses up Social Security income for the applicants, and/or their children at 120 percent. Of course, where necessary, SHHCH amortizes the loans out 38 years, lowering the monthly payments. In many instances, SHHCH uses Section 8, food stamp and Social Security income all together. Given the high rents in Hawaii, the client will be paying less for their mortgage payments than their rent. Therefore, SHHCH is not only improving their living situation at a more affordable rate, but also creating wealth for the family.
Network News April 2012