A source of controversy in the Trump administration, down payment support programs are receiving renewed attention today to counter both the economic impact of the pandemic and soaring house prices
Numerous down payment support programs across the country – or DPAs – provide means for buyers to take their first steps towards buying a home. While DPAs are ubiquitous, they are often not fully understood or used, resulting in many potential owners leaving the market and losing their home-acquired assets. With housing costs expected to remain high, DPA is still essential – if buyers and lenders alike take advantage of it.
"There's no county in this country that doesn't have down payment assistance," said Sean Moss, operations manager at Down Payment Resource. The Atlanta-based organization aggregates and monitors details of approximately 2,100 affordability programs and guides lenders and buyers to them – a service sometimes jokingly referred to by its users as Match.com for Down Payment.
And DPA can be accessed by a far larger proportion of the population than many think. While an income cap of 80% to 100% of the median of an area is common to qualify for such programs, many will rise to 140% or more, according to Moss. And they're not all limited to first-time buyers. “We often surprise people when we work with an MLS or a lender or a nonprofit and say, 'Look, this is the range of income limits for programs in your market. Here is the volume of possibilities, ’" he said.
The Bay Area Affordable Homeownership Alliance offers support primarily in the counties of San Mateo, Contra Costa, and Alameda outside of San Francisco, where even cheaper entry-level homes can average $ 500,000 or more. In view of the high salaries in some municipalities, the corresponding income caps for the down payment assistance are likely to be increased, according to their administrative director Walter Zhovreboff.
Zhovreboff has seen a large number of workers inside and outside his service area qualify for assistance. “We have accommodated several hundred people here in the houses. And in San Francisco we saw lawyers who just graduated, people who just graduated from law and just started falling into those numbers. You will be a teacher – many teachers qualify for it. "
A local television journalist and a jazz musician are among the successful applicants Allianz has helped. But, according to Zhovreboff, BAAHA's support primarily benefits the professions that make up "your basic infrastructure employment base," which include nurses, administrative assistants, data center workers, and dispatchers.
However, Zhovreboff estimates that only about 30% of people are aware of his agency's programs – not necessarily a bad problem for him. With costs as high as in the Bay Area, even that smaller percentage quickly exhausts what their agency has to offer. "You need to understand that a 30% effect still puts a lot of demands on the system," said Zhovreboff, who said that about 80% of the funds available are used.
While concerns emerged in the first few weeks of the coronavirus pandemic about the feasibility of many affordability initiatives, both financially and logistically, most have remained broadly unscathed and continue to serve borrowers. Some are now able to offer as much, if not more, financing than they did before 2020, either as a percentage of the home price or as a base amount.
Rather than relying solely on government subsidies or donations, DPA programs also work with bond financing, many of which are "essentially perpetual," according to Moss. This source protected them from the worst economic effects of the coronavirus. Some agencies complement bonds with other creative financing solutions.
The Ohio Housing Finance Agency offers a range of support packages for everyone from recent college graduates to public service employees. The income for its programs is generated internally. "For our down payment help, we contribute to the bond deal, and we price our loans a little higher," said Tom Walker, Head of Housing Development at OHFA.
A borrower who takes out a loan through the OHFA may qualify for a low interest rate, but if they also apply for down payment assistance, the interest rate can be a quarter to a half percent higher. This higher rate provides revenue for the DPA segment.
But even at a higher rate, the benefits can pay off in the long term, provided you stay at home for the specified time. This is especially true when aid is granted in the form of grants or refundable loans. In Ohio, borrowers qualifying for the new college graduate opportunity could have their down payment loan waived within five years.
The extent to which home ownership is recognized as a means of bridging the wealth gap was underscored in the 2020 presidential election when President Biden made deposit assistance a key campaign promise. The current $ 3.5 trillion social infrastructure plan the Democrats are seeking to enforce includes a provision that would distribute a down payment of up to $ 25,000 to first-time home buyers.
Biden's efforts to expand these programs are in sharp contrast to the views of his predecessor, whose government proposed restricting data protection authorities.
However, there are still challenges in reaching those who are currently qualifying for these programs. A recent study by NeighborWorks America found that 76% of Americans who were new to homeowners viewed their inability to afford a down payment as the main barrier to buying. And 49% said they knew little or nothing about data protection authorities in their communities.
Similarly, a study of Chase Home Lending first-time buyers found that only about half of respondents expected to research DPAs in the buying process. But despite the challenges posed by COVID-19 and the current price hike, many were still hoping for a purchase, with 70% of respondents planning to make a purchase in the next 12 months.
Trying to spread awareness to reach a wider segment of the population is a challenge that many programs attempt to tackle. "We're always open to talking about how we can get involved in the communities that they'll hear from us," said Dorcas Jones, chief communications officer at OHFA. "Sometimes there is definitely a gap between who would benefit the most and who actually hears from us."
Of the 153 lenders who signed up for OHFA loan programs, around 20% provide most of the volume. The agency has relied primarily on word of mouth from its lenders, as well as communication with real estate agents.
The Real Estate Relations Manager has been busy promoting the program over the past year. "He took online classes even during the COVID period," said Walker. "During his class, he puts a piece aside to introduce you to OHFA so that you will be aware of it, in order to get the message across."
While many programs appear to be in good health, data protection authorities are currently facing an economic environment that they could not have foreseen just a few years ago. "These programs try to adapt to the price increases," said Moss. "Open the income lines to more people who qualify and give them a little more down payment help to make up for the price hike – maybe not the whole price hike, but they are doing what they can to help."
With the housing market showing little sign of cooling, the need for programs has only increased and is one of the few options available to many Americans trying to build wealth through their homes.
"There are ways to own a home and that will hopefully help people who have sidelined themselves because we fear a lot of it is happening right now," Moss said.