A recent review of down payment assistance programs by Down Payment Resource (DPR), in its Home Ownership Programs Index (HPI), analyzed 2,273 programs and found that the net number of down payment assistance programs Homebuyer Assistance increased 1.6% from the first to second quarters of 2022. The increase marked the third consecutive quarter that homebuyer assistance programs expanded nationwide.
Another recent DPR study found that a significant share of mortgage applications were both declined for reasons that can be addressed with homebuyer assistance and/or eligible for assistance programs. when buying a house. Through an analysis of Home Mortgage Disclosure Act (HMDA) data, these applications were declined due to insufficient closing cash ratio or disqualifying debt ratio (DTI), but were classified as “potentially salvageable” with home buying assistance. DPA analysis found that a large proportion of declined loan applications were eligible for home purchase assistance, 33% of all declined home purchase mortgage applications were declined due to insufficient closing cash ratio or disqualifying DTI ratios, and eligible for home purchase assistance at the time of declination.
With an increasing number of down payment assistance programs available, it seems like more potential buyers need to know about these products when they need to secure their dream home. In these times of affordability worries in light of record listing prices and erratic mortgage rates, buyers need every edge they can gain to compete in today’s market.
MReport had the opportunity to discuss with Rob Chrane, Founder and CEO of Down Payment Resource about the affordability issues that plague many nationwide and the benefits of down payment assistance programs.
Chrane has over 30 years of experience as a producer and senior executive in the real estate and mortgage financing industries. Recognizing a unique need, he launched DPR to connect eligible homebuyers and qualifying properties with hard-to-find down payment programs.
Throughout his career, Chrane has worked for several community housing organizations, including the Urban Land Institute’s Terwilliger Workforce Housing Center, and has worked on numerous Habitat for Humanity homes.
The issue of housing affordability seems to be a vicious cycle, as inflation and rising rates are forces working against first-time buyers looking to buy. What needs to change to remedy this problem and break this cycle?
Chronicle: Today’s affordability challenges are the product of problems that have gone unaddressed for years and are now boiling over. But more important is the lack of inventory, especially of entry-level housing. In 1980, 40% of new home construction was entry-level, and four decades later that number has dropped to just 7%.
The “four Ls: legal, labor, land and wood” also work against us, which goes against the economics of homebuilding. Until we can encourage new construction, there will always be a shortage of affordable entry-level housing. Many localities across the country are reassessing zoning, permits and other regulations that impede the development and preservation of affordable housing, but by definition this is a piecemeal effort and will take years, if not decades.
Do you expect housing affordability issues to persist for the rest of the year, or do you think the problem will extend beyond that?
Chronicle: Given the root causes of the current housing affordability issues, they are unlikely to resolve themselves in the next few years.
Other than rental, what options would you suggest to a buyer currently shopping in this increasingly competitive market?
Chronicle: In ultra-competitive markets, winning deals for borrowers who don’t have cash reserves to cover valuation spreads can require tough conversations, where expectations about neighborhood and timing of purchase need to be reset. .
When mortgage professionals have these discussions, it is important that borrowers understand the cost of waiting – this appreciation will likely exceed borrowers’ ability to save, and higher interest rates and inventory issues improve in the coming years.
Instead of spending years saving to boost their cash flow, homebuyers should continue their purchases with a down payment assistance program, of which there are thousands. It’s a common misconception that homebuyer assistance programs are only for low-income borrowers, new homeowners, and properties with selling price limits, but that’s not true. There are a plethora of programs designed for people of color, veterans, community heroes such as firefighters and nurses, and more.
Are down payment assistance plans and first time purchase plans feasible options to consider in this market?
Chronicle: In today’s competitive market, it’s perfectly possible to buy a home with down payment assistance. In fact, more than half a million people have bought homes with the help of homeownership assistance programs in the past year.
In the first quarter of 2022, there were 2,238 active homebuyer assistance programs – a figure that includes down payment and closing cost programs, mortgage credit certificates and affordable first mortgages – with at least one program available in each of the 3,143 US counties and 10 or more programs available in over 2,000 US counties.
But that’s not to say that buying a home with Homebuyer Assistance isn’t without its challenges. As housing professionals, we have a huge influence on the ability of cash-strapped borrowers to access homeownership, and we need to challenge ourselves to be better informed about the affordability programs available to borrowers on our markets.
To make competitive offers with homebuyer assistance, consumers need informed and engaged lenders and real estate agents. The best results are achieved by teams of experienced real estate agents who can facilitate a smooth transaction and are able to effectively educate and ease the concerns of listing agents and sellers.