Loan officers and real estate professionals are uniquely positioned to help potential homebuyers overcome obstacles they may face—both expected and unexpected. After all, you have the experience and expertise that buyers need. They need your help to understand the process of finding and buying a home, and they need your services to make offers and get a mortgage.

But to really set yourself apart from the competition, be proactive, not reactionary. When you offer options like down payment assistance (DPA) programs that buyers may not have considered, you’re equipping your buyers with strategies that put them in the driver’s seat. The idea here is not to steer a buyer in one specific direction, but to present options to consider.

Let’s take one of the largest obstacles to becoming a homeowner: the down payment. Whether you’re a loan officer or real estate agent, how much a buyer has for a down payment is an important factor in how you do your job. The down payment is a factor in how much home loan lenders qualify a buyer for, and the range of homes that real estate agents show. DPA programs can help with that.

Start by busting the 20% down payment myth with DPA programs

Homes.com surveyed Gen Zers and found that over 50% don’t know how much of a down payment they’ll need or think they’ll need 20% or more. Buyers may come to you with a preconceived notion of what they can afford. Your first opportunity to solve a problem for those buyers is show them they have more options than they thought.

Mortgage insurance (MI) can make it possible for buyers to put less than 20% down, leading to a wider range of home prices to consider. And DPA programs can expand their budget further by defraying their down payment costs. Many buyers have never heard of DPA programs, or think they won’t qualify—you can be the expert who expands their knowledge and options.

Show how different DPA programs and strategies will work for buyers

As you talk with customers about their goals, offer options they may not have considered that may fit their specific situation. For example:

• Have a first-time homebuyer with a relatively small down payment? Show them they can look at a wider range of homes if they consider buying more house and using MI.
• Match a move-up buyer with DPA programs—not all programs are for first-time homebuyers!
• Show a buyer in an area with tight inventory that they could consider fixer-uppers by putting less down and using the remainder of their down payment funds to make renovations and repairs right away.
• In a seller’s market, bidding wars can drive up offers—and can lead to a gap between the offer and the appraisal value. In that situation, explain how MI can prevent buyers from having to come up with extra funds at closing.

Learn more about these strategies at rethinkmi.com. In all these cases, of course, you want to be upfront with the buyer that putting down a smaller percentage on a house will mean a larger monthly mortgage payment. But if they can afford it, these down payment options may prevent buyers from being sidelined—and help you get them to the closing table. Not to mention, those buyers will remember how you took the time to understand their situation and offer solutions, leading to glowing reviews and referrals.

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Down Payment Resource, the nationwide database for homebuyer programs, released its Fourth Quarter 2019 Homeownership Program Index (HPI). The latest HPI data debunks five common down payment myths that may be keeping buyers on the sidelines longer than necessary.

Down Payment Resource (DPR) communicates with 1,165 program administrators to track and update the country’s wide range of homeownership programs, including down payment and closing cost programs, Mortgage Credit Certificates (MCCs), affordable first mortgages and more. 

First-time homebuyer growth

A 2019 TransUnion analysis found that the next three years are expected to produce more first time homebuyers than any point since the recession — at least 8.3 million. However, TransUnion’s October 2019 survey of non-homeowners reported only one-third of the respondents said they actually understood the home buying process, and only 1% of survey respondents said the home buying process was easy. In addition, one in three respondents (34%) said they were not familiar with any mortgage financing options, and two-thirds of respondents were not familiar with government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

“Today’s market is attracting Millennial and Gen Z first-time homebuyers. The housing industry can do more to educate the future of the market about their home financing options, especially down payment assistance,” said Rob Chrane, CEO of Down Payment Resource. “Our new Homeownership Program Index reports a growing number of incentive programs designed for educators, police officers, firefighters and healthcare workers. More markets are looking at affordable housing strategies to attract and retain important services.”

Top 5 down payment myths debunked

Myth #1: You need 20% down to buy a home.

TransUnion’s survey found that 41% believe a high down payment is required to purchase a home. In fact, there are many low down payment loans and programs available. New data shows that a lower down payment may even be better for many new buyers, as it provides a valuable cash cushion. Research by the JPMorgan Chase Institute found that liquidity — having at least three months of mortgage payments available — is a better measure of homeownership success than a large down payment. There are a wide range of homeownership programs that can help with the down payment and closing costs.

The HPI reports an increase in the share of down payment and closing cost assistance programs:

• 77% of programs in the database are down payment or closing cost assistance — a 6% increase from the previous HPI.
• 7% of programs are first mortgages — a 2% decrease from the previous HPI.
• 6% of programs are Mortgage Credit Certificates (MCCs) — a 2% decrease from the previous HPI.
• 10% are additional programs, including matched savings programs and Housing Choice Vouchers (HCV).

Myth #2: Down payment help is only for first-time homebuyers.

The industry often associates homeownership programs with first-time homebuyers, but eligibility is actually broader. The official definition of a first-time homebuyer — according to HUD — is someone who has not owned a home in three years. In addition, the HPI reports that 41% of homeownership programs do not have a first-time homebuyer requirement and are available for eligible repeat homebuyers.

Myth #3: Down payment programs aren’t available in my area.

Down payment programs are available in every market across the country. The HPI reports 70% of programs are available in a specific local area, such as a city, county or neighborhood and nearly 30% of programs are available state-wide through state housing finance agencies — a 2% increase from the previous HPI. States with the greatest number of down payment programs remained consistent —California, Florida and Texas are the top three.

View a complete list of state-by-state program data.

Myth #4: It’s too expensive to buy a home in my market.

Down payment help is available in every market, including high cost areas. The HPI reports that 11% of programs offer incentives and even specific programs for community service workers, including educators, police officers, firefighters and healthcare workers — a 3% increase from the previous HPI.

Plus, more than 6% (6.3%) of programs have benefits for veterans, members of the military and surviving spouses. These programs can also be layered with zero down payment VA loans.

One-to-four unit multi-family properties can also qualify for down payment help. Twenty-five percent of programs allow buyers to purchase a multi-family property as long as the buyer occupies one of the units, which allows the homeowner to earn income from their rental units to help pay the mortgage.

Myth #5: Down payment programs make home financing more difficult.

There are 2,451 homeownership programs available and 83% currently have funds available to eligible homebuyers. Exploring home financing options should be the first step for prospective buyers, however, they don’t have to go it alone — housing agencies, program administrators and participating lenders can provide expert guidance.

Homebuyers can get a jump start by completing the homeownership education course typically required to qualify for a program. This education gives buyers confidence with the home buying process, financing options and budgeting. Homebuyers should refer to the specific requirements and education providers as specified by the program.

After a homebuyer is approved for a program, the agency will provide documentation that can be submitted with an offer. Sellers can also benefit because the down payment program may help cover closing costs.

Joe Mellman, senior vice president and mortgage business leader at TransUnion, highlights the opportunity for lenders to connect buyers to available programs: “Many of our potential first-time homebuyer respondents don’t seem to be aware of the wide variety of financing options available to them. It suggests there’s a large opportunity for lenders to proactively identify consumers who are interested in becoming first-time homebuyers and then educating them on options they may not be aware of. Consumers may find home ownership programs that are more flexible than they originally thought, and lenders in turn can gain new customers.”

Download the infographic and complete Q4 2019 HPI press release.

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