Blog posted On June 05, 2018
Saving for a down payment is the most commonly reported obstacle to homeownership. With rents rising and student debt accumulating, the problem is even more exacerbated with first-time home buyers trying to enter the market. As the down payment obstacle persists, the demand for down payment assistance has also continued to increase. According to a Scotsman Guide interview with Down Payment Resource CEO Rob Chrane, as of the first quarter of 2018 there are approximately 2,503 down payment assistance programs nationwide, and the demand for down payment help is likely to continue.
Traditional down payment assistance is available in the form of a grant, additional loan, or tax credit. A grant, such as a community grant, does not always have to be paid back. A loan is a form of assistance the borrower pays back over time, usually factored into the monthly mortgage payment. Tax credits are applied in the form of mortgage credit certificates to reduce the amount of federal income tax the borrower must pay. In a few cases, the borrower may face higher interest rates depending on the type of down payment assistance.
A large share of down payment assistance programs are geared toward first-time home buyers, however not all programs are limited to this demographic. Chrane reports, about 36% of the programs in the Down Payment Resource database do not have a first-time home buyer requirement. Household income limits also vary based on Area Median Income. Chrane explains, “there is no set amount. [Income limit] just depends on how high a cost an area is, and it depends on who the program administrator is, and what their funding mechanism is. Certain types of funding mechanisms may have stricter limits on the maximum household income. Others have more flexibility.” Down payment assistance programs are offered by state Housing Finance Agencies (HFA), cities and counties, housing authorities, nonprofit organizations, and even employers. Qualifications vary from program to program.
Even with home values trending upward, Chrane insists there is not “hard data” to support a correlation between home price appreciation and the need for down payment assistance. Based on data from Down Payment Resource, the two major reasons mortgage loans are declined are not enough cash reserves and high-debt to income ratios. Both of these issues can be linked to high student debt, a pervasive issue amongst younger first-time home buyers, like Millennials.
Some lenders, like CMG Financial, have pioneered their own forms of down payment assistance to help alleviate this national burden. HomeFundItTM by CMG Financial is the first and only approved crowdfunding platform designed specifically for the down payment on a home. Through HomeFundIt, home buyers are able to augment existing savings or grow a down payment from scratch through contributions from family, friends, and anyone else in their network. The digital platform streamlines the mortgage prequalification and gift documentation process through one Fannie Mae and Freddie Mac compliant system. All funds are ready to be disbursed at the time of home purchase. First-time home buyers also have an opportunity to get closing costs covered through a special grant opportunity, contingent upon the completion of home buyer education or pre-purchase counseling.
Sources: Scotsman Guide