The downpayment is often considered the No.1 impediment standing in the way of home buyers, possibly because many wannabe owners believe they need at least 20 percent down to qualify for financing. But that’s not always true.
Of course, the more you put down on your mortgage, the lower your monthly payment will be. And it’s the monthly nut on which most people concentrate. But if you don’t have the cash, and can’t raise any more, even with help from Mom and Dad, friends or other relatives, you’ll have to settle for a loan which allows for a minimal amount up front.
What most people don’t know is there is help available in all 50 states and the District of Columbia for folks who are little short on their downpayment dinero. Down Payment Resource (DPR), which tracks federal, state and local programs that assist home buyers one way or another, counts some 2,500 government, municipal and non-profit plans.
It’s not just buyers who don’t know these programs exist. It’s also real estate agents, lenders and practically every other professional you’ll come across in your house-hunting odyssey. “Nobody knows,” says Rob Chrane, CEO of Atlanta-based DPR, which is working to get the word out by licensing its data to multiple listing services, Realtor associations, lenders and housing eligibilities.
Most recently, the company has partnered with MGIC, a major mortgage insurer, to give lender clients discounted access so they can match borrowers to programs for which they be eligible. As an insurance company which protects lenders in case a borrower defaults on his loan, it has helped make low-down payment mortgages a reality for millions of families. (FYI, if you don’t have at least 20 percent down, most lenders require mortgage insurance.)
According to a recent report from the Urban Institute, a Washington, D.C.-based non-partisan think tank, 38 percent of all mortgages made to people who bought homes (as opposed to refinancing) were eligible for some kind of help with their downpayments. On average, these 471,000 borrowers qualified for seven different programs and an average of $15,000 in aid.
“Nobody knows how many loans closed with downpayment assistance,” says DPR’s Chrane, “but it wasn’t 38 percent!”
What kind of assistance is available, and where?
Downpayment assistance is available for almost all mortgages, conventional as well as government-backed. But the programs and the amount of assistance is greatest for loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs and the Department of Agriculture.
Typically, the programs provide grants or loans to borrowers. They are offered at the national, state and local levels, largely through state agencies and state housing finance agencies. But nearly 50 programs are offered by three dozen agencies at the national and regional levels and are available in more than one state.
According to the Urban Institute report, the share of people eligible for help in “select” metro areas ranges from 30 to 52 percent. These folks could qualify for from three to 12 programs with assistance ranging from a couple of thousand dollars to more than $30,000.
Here are few more specific examples from the DPS database:
- Washington, D.C.: Offers 15 programs with up to $84,000 in assistance. One is a long-term, zero-interest loan up to $80,000. You can add to that $4,000 in closing cost help, or 4 percent of the purchase price, whichever is less. And if you work for the city, you can combine all that with D.C. employee assistance.
- Philadelphia: Offers 17 programs with up to $20,000 in aid, including a three-year forgivable loan of up to $7,500. The city also offers up to $4,000 in grants if people buy in certain targeted areas.
- Detroit: Offers 14 programs, up to $30,000 in assistance, including five-year no-interest loans.
- New Orleans: Offers 13 programs, including a 30-year first mortgage with an interest-free second mortgage of up to 10 percent of the loan amount to use as help with the downpayment.
What buyers and homes are eligible?
One of the major challenges with downpayment assistance is that the various programs are not standardized. Eligibility requirements vary, and not all lenders are willing to accept assistance as part of a client’s downpayment.
Typically, though, eligibility is based on a number of factors, including income and family size. Some programs are aimed specifically at rookie buyers, but others allow repeat, move-up buyers to participate. Nearly 15 percent target armed forces veterans, first responders, educators and persons with disabilities or other special circumstances.
All programs carried in the DPR database are available for single-family houses, including townhouses and condominium apartments. Two-to-four unit properties are okay under 17 percent of the assistance programs. Moreover, in many cases, the programs can be combined with each other.
Nearly 15 percent are aimed specifically at veterans, first responders, educators, persons with disabilities or other special circumstances.
Some 71 percent of the programs currently listed in the database offer help with downpayments and closing costs. They include grants which need not be paid back, no-interest or low-interest second mortgages with payments that may be deferred or forgiven, and neighborhood stabilization programs aimed at revitalizing communities hit hard by foreclosures or unemployment.
The database also tracks any number of mortgage assistance programs, including those which offer first mortgages at below-market rates, no downpayment financing and loans which call for low or even no mortgage insurance. And it includes programs that provide up to $2,000 in annual tax credits, employer assisted housing benefits and individual development accounts that provide a matching downpayment savings program.
Many of the programs also carry an education component. Though various studies have shown that wanna-be buyers who take these courses are better prepared for ownership and are less likely to fall behind on their payments, Chrane says only 2-3 percent of all buyers receive some sort of pre-purchase counseling or education.
Where can I learn more?
For more information about what kind of assistance may be available in your area, buyers can tap into the DPR search engine or your state housing finance agency website. The National Association of State Finance Agencies has a complete list of state housing agencies with phone numbers and websites.