Jacki Madding came to a Chattanooga Realtors luncheon May 13 with both a warning and a pitch: Teachers, firefighters, restaurant workers and other working residents are increasingly being priced out of homeownership, but the city hopes a new $3 million down payment assistance program can help reverse that trend.
Speaking during the Women’s Council of Realtors monthly networking luncheon at The Walden Club, Madding outlined how the city of Chattanooga’s new initiative aims to help first-time homebuyers overcome one of the biggest barriers to purchasing a home – the up-front costs.
“We’re finding that it’s everyday working people,” said Madding, speaking on behalf of the Tennessee Housing Development Agency. “You have firefighters, police officers, teachers, hairdressers and folks who work in restaurants. There’s a wide variety of people in our community who would love the opportunity for homeownership, but they’re struggling when it comes to qualifying income for a home.”
The program, which begins accepting eligible mortgage loan applications June 1, will provide up to $15,000 in down payment assistance for qualifying buyers purchasing homes within Chattanooga city limits.
“We’ve received our funding,” Madding told the audience of Realtors and mortgage professionals. “We’re putting $3 million into the community through this initiative.”
A widening affordability gap
Throughout her presentation, Madding repeatedly returned to the same concern: wages simply have not kept pace with Chattanooga’s housing costs.
According to figures presented during the luncheon, incomes in Chattanooga have risen about 36% since 2019. During that same period, average rents climbed roughly 54% while home values increased about 63%.
Although the housing market has begun to stabilize somewhat, Madding said many residents remain caught between rising housing costs and stagnant purchasing power.
“We have a housing crisis in the city of Chattanooga because incomes have fallen behind,” she said. “A lot of people are struggling with their income levels and, of course, wages aren’t increasing as much as they should.”
Madding said the median sales price of a home in the area remains around $330,000, while average rent sits near $1,500 per month. Mortgage payments that averaged nearly $1,020 several years ago are now approaching roughly $2,500.
“This is a dream that often feels out of reach for people,” Madding said. “So we wanted to find a way to help make it possible.”
City leaders approved the funding last October after local housing officials and community partners spent months designing a program intended to fill what Madding described as “that last hurdle” keeping many families from becoming homeowners.
How the assistance works
The city’s assistance will come in the form of a 0% interest deferred loan of up to $15,000. The loan will not require monthly payments and will only become due if the homeowner sells the property or completes a cash-out refinance. If the homeowner remains in the property for 30 years, the loan will be forgiven.
“We want to leverage the resources and expertise we already have in our community,” Madding said. “Many of you are bankers and mortgage brokers and already have excellent products to offer prospective buyers. We want you to lean into those strengths, and then we’ll step in to help fill the gap.”
The city will not originate or underwrite loans itself. Instead, local lenders, banks, credit unions and community development financial institutions will process applications and coordinate with the city for funding approval.
Madding emphasized that Chattanooga designed the program specifically to work alongside existing lending products already offered by local financial institutions and the THDA.
Borrowers who combine the city’s maximum assistance with THDA’s $6,000 Great Choice product could potentially receive as much as $21,000 in combined assistance.
“The good news is that local lenders also have excellent products available through community banks,” she said. “Talk with them and find out what’s available because buyers may be able to qualify for larger amounts through those programs as well.”
Preparing buyers for homeownership
To qualify for the program, applicants must be first-time homebuyers under federal guidelines, meaning they haven’t owned a home within the past three years. Household income cannot exceed 120% of the area median income.
Applicants must also complete an eight-hour homebuyer education course, maintain at least a 620 credit score and contribute a minimum of $1,000 toward the purchase through earnest money, appraisal costs or other eligible expenses.
Madding said city officials intentionally built education requirements into the process because they want buyers to fully understand the financial realities of owning a home before they close.
“It gives them a clearer understanding of what homeownership looks like, even after closing,” she said. “We think it’s important for individuals and families to fully understand what the process involves.”
Eligible properties must be located within Chattanooga city limits and priced at $400,000 or less. Single-family homes, town homes and condominiums qualify, while accessory dwelling units may be considered on a case-by-case basis.
The city will also require home inspections and escrow accounts to help ensure buyers are financially prepared for long-term ownership.
“If they’re seeking down payment assistance, chances are they’re already financially stretched to some degree,” Madding said. “It’s great that we can help them preserve some of their cash and build savings for future home expenses, but we also want them to understand the unexpected costs that can come with homeownership.”
Realtors and lenders seen as key partners
Much of Madding’s presentation focused on the role Realtors and lenders will play in connecting potential buyers to the program.
She encouraged Realtors to direct clients toward homebuyer education courses and participating lenders early in the process.
“We trust the people in our community who support this work and make it happen every day,” she said. “This program was designed with you in mind.”
The city has already begun training lenders and housing professionals ahead of the June launch. Madding said more than 100 people participated in recent in-person and virtual training sessions.
Officials also plan to continue community outreach efforts throughout the summer, including informational sessions for first responders, educators and the general public.
THDA representatives will participate in some of those sessions to discuss additional assistance opportunities available through the agency’s Homeownership for Heroes program, which now also includes educators.
Looking ahead
Madding said Chattanooga officials have already requested additional funding for the initiative in the next fiscal year and expect to learn in June whether more money will be approved.
“By the time we process the first round of applications, we should be able to announce additional funding and continue building momentum for the program,” she said.
Applications tied to mortgage loans dated June 1 or later will be eligible for the program.
More information is available at Chattanooga.gov/dpa.