A source of
Numerous down-payment assistance programs across the country — or DPAs — offer buyers funds to take the first steps toward purchasing a home. Although ubiquitous, DPAs are often not fully understood or utilized, causing many potential owners to leave the market and lose out on wealth earned through homeownership. With housing costs expected to
“There isn't a county in this country where there's not some kind of down-payment help available,” said Sean Moss, director of operations at Down Payment Resource. The Atlanta-based organization aggregates and monitors details of approximately 2,100 affordability programs and leads lenders and buyers toward them — a service sometimes jokingly referred to by its users as Match.com for down payment.
And a far larger segment of the population can access DPA than many realize. While an income cap of 80%-100% of an area’s median is common to qualify for such programs, many will go up to 140% or more, according to Moss. And they are not all limited to first-time buyers. “We commonly surprise people when we’re working with an MLS or a lender or nonprofit, and we go in and say, ‘Look, here’s the range of income limits for programs in your market. Here’s the volume of opportunity,’” he said.
The Bay Area Affordable Homeownership Alliance provides assistance primarily in San Mateo, Contra Costa and Alameda Counties
Zhovreboff has seen a wide range of workers qualify for aid both within and outside his coverage area. “We placed multiple hundreds of people here in the homes. And in San Francisco, we've seen attorneys who just graduated, people who just got their law degrees and just starting, falling into these numbers ... A lot of teachers qualify for it.”
A local TV journalist and a jazz recording artist are among the successful applicants the alliance has served. But for the most part, Zhovreboff says BAAHA’s assistance benefits the professions that make up “your base infrastructure employment base,” which includes the likes of nurses, administrative assistants, data center employees and dispatchers.
Yet Zhovreboff estimates that only about 30% of people are aware of his agency’s programs — not necessarily a bad problem to have. With costs as high as they are in the Bay Area, even that smaller percentage quickly exhausts what his agency offers. “What you have to understand is that a 30% impact still puts a heck of a demand on the system,” said Zhovreboff, who said about 80% of available funding is being utilized.
While concerns arose in the early weeks of the coronavirus pandemic regarding the viability of many affordability initiatives from both a financial and logistical standpoint, by and large, most have emerged unscathed and continue to serve borrowers. Some are now able to offer as much, if not more, funding than what they did prior to 2020, either as a percentage of the home price or a base amount.
Rather than relying exclusively on government subsidies or donations, DPA programs also operate using bond funding, much of it “essentially perpetual,” according to Moss. This source protected them from the worst economic effects of the coronavirus. Some agencies supplement bonds with other creative financing solutions.
The Ohio Housing Finance Agency provides a range of assistance packages designed for everyone from new college graduates to public-service employees. Income for its programs is generated from within. “For our down payment assistance, we contribute to the bond deal, and we also price our loans a little bit higher,” said Tom Walker, housing preservation development manager at OHFA.
A borrower taking a loan through OHFA may qualify for a favorable interest rate, but if they request down payment assistance in addition, the rate might come in a quarter to half a percent higher. That higher rate provides revenue for its DPA segment.
But the benefits of assistance can pay off in the longer term even with a higher rate, contingent upon remaining in the home for the length of time stipulated. This is especially true when aid comes in the form of grants or forgivable loans. In Ohio, borrowers who qualify for its new-college-graduate opportunity could have their down payment loan forgiven within five years.
The extent to which homeownership is recognized as a means toward
Biden’s efforts to expand these programs stand in sharp contrast to views held by his predecessor, whose administration proposed to restrict DPAs.
But challenges still exist in reaching those who currently qualify for these programs. A recent study conducted by NeighborWorks America found that 76% of Americans who were not already homeowners saw their inability to afford a down payment as a primary impediment keeping them from buying. And 49% said they knew little or nothing about the DPAs in their communities.
A study of first-time buyers by Chase Home Lending similarly revealed only about half of its respondents expected to research DPAs in the buying process. But despite the challenges presented by COVID-19 and the current spike in prices, many were still hoping to buy, 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 many programs are trying to overcome. “We're always open and talking about how to get out in the communities in ways that they can hear about us,” said Dorcas Jones, chief communications officer at the OHFA. “There's definitely sometimes the gap between who would benefit the most and who actually hears about us,”
Of the 153 lenders signed up for OHFA lending programs, about 20% provide most of the volume. The agency has relied primarily on word of mouth through its lenders plus communication with real estate agents.
Its real estate relations manager stayed busy over the past year promoting the program. “Even during the COVID period, he has done online classes,” said Walker. “During his classes, he sets aside a portion to introduce them to OHFA, so that they're aware of it to get the word out as well.”
While many programs appear to be in good health, DPAs are currently facing an economic environment that they couldn’t have foreseen just a couple years ago. “These programs are trying to adapt to the price increases,” said Moss. “Open the income limits to more people qualifying and give them a little bit more in down payment help so that it does offset — maybe not all of the price increase, but they're doing what they can to help.”
With the housing market showing few signs of cooling off, the need for programs has only increased and are among the few options available to many Americans trying to build wealth through their homes.
“There are paths to homeownership, and hopefully that helps people that sidelined themselves essentially because we do fear that there's a lot of that happening right now,” Moss said.
