It’s been another tough year for many potential homebuyers who are finding it hard to compete in a housing market with increased demand and limited supply. We’re encouraged to see our top five blog posts for this year reflect a continuing desire for homeownership, as buyers look for alternatives and guidance in a tight market. 

1. Is down payment assistance for everyone?

Down payment programs can be a huge benefit to homebuyers, but it’s important to note that typically the buyer and the property must meet certain criteria. Family finances, as well as the location and price of the home will be taken into consideration when qualifying, and the criteria can vary greatly per program. Make sure to take the time to investigate the options for your personal situation.

2. You Don’t Need 20 Percent Down to Buy Your Next Home. Here’s why.

The 20 percent down myth has been circulating since the housing crisis, over a decade ago. Although putting 20 percent down isn’t necessarily a bad thing, there are other options. Low down payment loans and homeownership programs – grants, forgivable loans, below-market first mortgages, tax credits and more – are available across the country.

3. Manufactured Homes, Plus Down Payment Assistance, Could Be an Affordable Housing Solution

Homeownership programs are constantly evolving to meet the needs of homebuyers. One noticeable change over the last couple of years has been an increase in the number of programs that allow for manufactured housing. With inventory shortages and inflated home prices, manufactured homes could be an affordable option for first-time buyers.

4. 6 Steps for Buyers Competing in a Tight Market

The recent homebuying market has been tough, especially for first-time buyers. Things like making sure your down payment is in order, getting pre-approved, and attending a homebuyer education course can increase the chances of scoring a home, even in a tight market. 

5. Four New Year Steps for Every Renter

It’s true that the past couple of years have felt like a roller coaster for many potential homebuyers, keeping them on the sidelines. Being prepared can help remove some of the stress from the homebuying process. Regardless of your purchase timeline, these four steps are important for any renter considering homeownership.   

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The Second Quarter 2021 Homeownership Program Index (HPI) reveals that Down Payment Assistance (DPA) programs make up 73 percent of the programs in the Down Payment Resource database.

These programs may come in the form of a repayable second mortgage loan or a non-repayable grant. They’re offered by federal, state, county or local government agencies, nonprofits or employers, and they’re available across the country for income- and credit-qualified buyers ready for homeownership.

“From grants to forgivable loans, down payment assistance is the largest category of programs we track. This gives buyers flexibility when it comes to applying for down payment and/or closing cost help,” said Rob Chrane, CEO of Down Payment Resource. “Buyers should discuss their program options with their loan officer and real estate agent to make sure they choose the program best suited to their personal needs.”

Repayable down payment assistance programs are often a 0 percent interest second mortgage.

Some accrue interest, while others are amortizing loans. They typically range from 5-year to 30-year loans with varying payback provisions. The repayment may start immediately or kick in after a predetermined period of months or years, referred to as a “soft” second.

The GC97 Freddie Mac HFA Advantage Program with GC97 Plus, offered through the Tennessee Housing Development Agency, is an example of a soft second. Buyers can receive up to $7,500, depending on the sales price of the home. The loan is amortized over a 15 year term, and the interest rate is the same as the first mortgage.

Some repayable programs have a partial balloon payment, where the remaining balance of the original second mortgage will come due at the end of the second mortgage term.

Nearly two-thirds of all down payment programs are silent seconds or deferred loans.

With a silent second or deferred loan, payments are postponed until one of several events occurs—usually, when the borrower sells, refinances, rents or moves out of the original home purchased.

These loans are ideal for buyers who plan to live in the home for several years, so they can benefit from the home’s appreciation in value. However, there could be a 1099 coming in the mail after the buyer sells, refinances, rents or moves out of the home—a taxable event buyers need to be aware of and plan for.

An example of a silent second is the Florida Housing Finance Corporation Florida Assist program, available statewide. This program offers buyers up to $10,000 for Government loans and up to $7,500 on Conventional Loans. The payments are deferred, but the loan will be due upon sale or transfer of the property, satisfaction of the first mortgage, refinance, or a change in occupancy.

Forgivable second mortgage programs account for almost half all of down payment programs.

With a forgivable second, some or all of the original down payment assistance amount is forgiven. When and how much will vary, but it’s common for a percentage of the loan to be forgiven each year for a predefined number of years. If the program’s conditions are not met—for example, the buyer moves out of the home—the loan must be repaid, at times with interest.

One example is the New Mexico Mortgage Finance Authority HOMENow Program, available statewide. This second mortgage provides the lesser of 8 percent of the sales price or $8,000 to first-time buyers and can be used for down payment and/or closing cost assistance. The program is non-amortizing, has a zero percent interest rate, and is forgiven after 10 years, if the borrower meets the program provider’s requirements.

Grant programs are gifts which do not have to be repaid by the homebuyer.

Grant programs do not incur a lien on the property being purchased and have no associated note or deed. These programs offer a true gift to the buyer at closing to help cover the cost of some or all of the down payment or closing costs and provide immediate equity.

The PenFed Foundation Dream Makers Grant is a national grant program that provides eligible military or veteran homebuyers with a 2-to-1 matching grant up to $5,000.

HPI Data Regarding All Program Types

73 percent of programs in the database are for down payment or closing cost assistance.

• 64 percent of all DPAs include payment deferral for some period of time.
• 43 percent of all DPAs are partially or fully forgivable.
• 38 percent of all DPAs are both deferred and forgivable.

11 percent are additional programs, including matched savings programs and Housing Choice Vouchers (HCV).

10 percent of programs are first mortgages.

5 percent of programs are Mortgage Credit Certificates (MCCs).

Other HPI Findings to Note

• The HPI reports a decrease in programs that may have been temporarily suspended due to the pandemic. Currently, 0.9 percent of programs are temporarily suspended, a 0.7 percent decrease from the previous HPI.
• 38% of homeownership programs do not have a first-time homebuyer requirement and are available for eligible repeat homebuyers. (A first-time homebuyer is defined by HUD as someone who has not owned a home in three years.)
• 74% of programs are available in a specific local area, such as a city, county or neighborhood. 26% of programs are available statewide through state housing finance agencies.
• 26% of programs allow buyers to purchase a multi-family property as long as the buyer occupies one of the units.
• 26% of programs allow manufactured housing as an eligible property type. Some restrictions may apply and will vary by program.
• More than 8% of programs are available for community service workers, including educators, police officers, firefighters, and healthcare workers.
• 12% 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.
• States with the greatest number of down payment programs remained consistent—California, Florida and Texas are the top three.

Download the press release and full infographic.

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Down Payment Resource, the nationwide database for homebuyer programs, today released its Third Quarter 2020 Homeownership Program Index (HPI). The number of total programs is 2,340, and over 81 percent (81.1%) of programs currently have funds available for eligible homebuyers, down a little less than 2 percent from the previous HPI. 

Down Payment Resource (DPR) communicates with 1,138 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. 

Overall Impact

Though we’ve noticed a slight and mostly temporary drop in available programs at the city and county level, it’s important to note that state housing finance agencies (HFAs), which comprise nearly 24 percent of all programs, have not closed or paused business during the COVID-19 pandemic. 

Stockton Williams, Executive Director of the National Council of State Housing Agencies (NCSHA), discussed the COVID pandemic and its impact on HFAs and lenders in an interview in the June/July issue of the Down Payment Report.

According to Mr. Williams, “the last several months have been a tumultuous time for the mortgage finance system and everyone who is involved with providing housing lending. There have been lenders who have pulled back from originating loans for low- and moderate-income borrowers for a variety of reasons, including general economic stress, or pivoting to do more business in refinances since rates are so low. There is also a lot of concern, which, frankly, state HFAs share, about some of the actions FHFA, FHA, Fannie, and Freddie have taken and not taken. Those have all contributed to uncertainty in the markets.”

The good news though, as Mr. Williams put it, is that “more often than not, we are hearing that state housing finance agencies are doing as much or more business than they were at this time a year ago, and in a number of cases, they are doing more. A handful of state HFAs have even told us that they have had record production in recent months.”

As of August, over 81 percent of all DPAs were actively funded and available, and less than 2% had temporarily paused their programs due to the pandemic.

Forbearance and Delinquencies

Although state HFAs have maintained business as usual through the pandemic, they had to explore more flexible arrangements regarding forbearance. 

A key take-away from this year’s National Association of Local Housing Finance Agencies (NALHFA) annual conference was that it’s becoming apparent forbearance claims near the start of the pandemic were expressions of consumer caution. Claims have since slowed, and reports from May and June show monthly mortgage payments are being made. However, there is worry of potential volatility still to come.

MBA reported this month that the share of mortgage loans in forbearance declined for the 8th straight week, but according to CoreLogic, delinquency rates are rising.

HFAs are trying to work with their master servicers and participating lenders on flexibility with loan level pricing adjustments (LLPAs) and purchase timelines related to loans that enter forbearance.

HOME and CDBG Funds

Per the HPI, over 32 percent of programs are funded by HOME Investment Partnership Program (HOME) and Community Development Block Grant (CDBG) funds. As states begin rolling out COVID-19 housing relief programs, and as municipalities begin planning for HOME and CDBG allocations this Fall, it’s important to track funding status and even forecast expectations for 2021.

Many of these relief programs are leveraging CARES Act and Emergency Solutions Grant (ESG) funds, but may also use any remaining HOME and/or CDBG funds. Any impact on DPAs will likely begin to trickle down later this year in the form of constrained DPA budgets. 

The good news is the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies passed its fiscal year (FY) 2021 appropriations bill, which will significantly increase HUD funding for housing programs, most notably HOME and CDBG.  

Other Findings to Note

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

78% of programs in the database are down payment or closing cost assistance — a 1% increase from the previous HPI. 

• 65% of all DPAs include payment deferral for some period of time.
• 44% of all DPAs are partially or fully forgivable.
• 39% of all DPAs are both deferred and forgivable.

6% of programs are first mortgages — a 1% decrease from the previous HPI. 

5% of programs are Mortgage Credit Certificates (MCCs) — a 1% decrease from the previous HPI. 

11% are additional programs, including matched savings programs and Housing Choice Vouchers (HCV).

Download the complete Q3 2020 HPI press release.

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Mortgage Ready Buyers May Benefit from Down Payment Help

Homeownership Program Index analyzes 7 markets with the greatest potential impact of down payment assistance

The Down Payment Resource Third and Fourth Quarter 2018 Homeownership Program Index (HPI) reports the number of total programs decreased to 2,524, down just three programs from the second quarter. More than 85 percent (85.8%) of programs currently have funds available for eligible homebuyers, down one percent from second quarter.

Down Payment Resource (DPR) communicates with 1,313 program administrators to track and update the country’s wide range of homeownership programs, including down payment and closing cost programs, Mortgage Credit Certificates, affordable first mortgages and more.

HPI key facts

• 39% of homeownership programs do not have a first-time homebuyer requirement and are available for eligible repeat homebuyers. (First-time homebuyer is defined by HUD as someone who has not owned a home in three years.)
• 74% of programs are available in a specific local area, such as a city, county or neighborhood. 26% of programs are available statewide through state housing finance agencies.
• 20% of programs allow buyers to purchase a multi-family property as long as the buyer occupies one of the units.
• Nearly 8% (7.9%) of programs are available for community service workers, including educators, police officers, firefighters and healthcare workers.
• More than 6% (6.4%) 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.
• 70% of programs in the database are down payment or closing cost assistance. 9% of programs are first mortgages and 8% of programs are Mortgage Credit Certificates (MCCs).
• 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.

Mortgage-ready buyers can benefit

According to the updated and expanded Urban Institute Barriers to Accessing Homeownership report, commissioned by Down Payment Resource and Freddie Mac, there are about 21 million mortgage-ready renters under 40 in the 31 largest US cities. In addition, most (about 88%) of the mortgage-ready millennials in the US earn enough to afford a typical house in their city.

“We now know there are millions of buyers with the income and credit necessary to qualify to buy a home. The biggest question is: do they know it?” said Rob Chrane, CEO of Down Payment Resource. “Unfortunately, many renters don’t investigate homeownership simply because they don’t believe it’s an option. Yet, every community is served by some type of homeownership program.”

According to the Barriers to Accessing Homeownership report, 36 percent of 2017 mortgages, across 31 of the largest U.S. cities, were eligible for down payment help. The HPI analyzed the impact down payment assistance could have on seven markets with the greatest percentage of 2017 purchase mortgage loans eligible for down payment help.

7 markets with the greatest potential impact of down payment assistance

Program examples

Riverside-San Bernardino-Ontario, CA: The Riverside County Economic Development Agency First Time Home Buyer Program provides up to 20% of the home purchase price with a maximum of $75,000 towards down payment and closing costs. In addition, buyers can combine this program with a Mortgage Credit Certificate, providing a life-of-loan tax credit.

St. Louis, MO-IL: The St. Louis County 1st HOME Downpayment Loan provides a $3,000 zero-interest down payment loan to income-eligible first-time homebuyers in St. Louis County. The second mortgage loan will finance the down payment and eligible closing costs, and the loan is due when the owner sells the home.

Baltimore-Columbia-Towson, MD: The Maryland SmartBuy 2.0 program enables qualified borrowers with student debt to purchase a program-eligible home in Maryland, and receive financing through the Maryland Mortgage Program (MMP). SmartBuy financing provides up to 15% of the home purchase price for the borrower to pay off their outstanding student debt up to $40,000.

Phoenix-Mesa-Scottsdale, AZ: Buyers in Phoenix have access to a Arizona Department of Housing “Pathway to Purchase” Down Payment Assistance Program that provides eligible buyers with a  second mortgage equal to 10% of the purchase price. It’s a zero percent interest, five–year forgivable second mortgage with no required monthly payments. The program, targeted to 26 zip codes in 12 Arizona cities, is an incentive to purchase in targeted housing markets that have been hardest-hit by foreclosures.

Houston-The Woodlands-Sugarland, TX: The City of Houston recently raised its Homebuyer Assistance Program (HAP) benefit to $30,000 in assistance for borrowers at or below 80 percent of the area median income.

Austin-Round Rock, TX: The City of Austin offers a forgivable, zero percent interest loan of up to $14,999 and a forgivable, zero percent interest loan with shared equity of up to $40,000 for eligible first-time homebuyers purchasing a home within the Austin city limits.

Memphis, TN-MS-AR: The City of Memphis offers a Citywide Down Payment Assistance Program (DPA) that provides up to 10% of the sales price with a maximum of $10,000 to help homebuyers with down payment and closing costs to complete the purchase of a home inside the city limits of Memphis.

View state-by-state data.

Download infographic.

The First Quarter 2018 Homeownership Program Index (HPI) reports the number of total programs decreased slightly to 2,503, down four programs from the previous quarter. More than 86 percent (86.5%) of programs currently have funds available for eligible homebuyers, down about one percent from the previous quarter.

Down Payment Resource communicates with 1,308 program administrators to track and update the country’s wide range of homeownership programs, including down payment and closing cost programs, Mortgage Credit Certificates, affordable first mortgages and more. This quarter’s HPI explains today’s common down payment assistance program features. 

“As the largest category of programs we track, we see a wide range of down payment assistance options — from grants to forgivable loans. Many programs offer buyers flexibility to use the grant or loan to fund their down payment and/or closing costs,” said Rob Chrane, CEO of Down Payment Resource. “It’s important for buyers to review and compare program options with their agent and lender so they apply for the program that is best for their personal situation.”

Largest category of homebuyer programs

Down payment assistance programs make up 69 percent of the programs in the Down Payment Resource database. Down payment assistance, or DPA, is an umbrella term for the many programs offered by a federal, state, county or local government agencies, nonprofits or employers. DPA programs include loans (with widely varying payback provisions), grants and other programs for potential homebuyers who are income- and credit-qualified and ready for homeownership.

Grant programs

Grant programs are gifts provided by an eligible third party which do not have to be repaid by the homebuyer, do not incur a lien on the property being purchased, and have no associated note or deed. These programs offer a true gift to the buyer at closing to help cover the cost of some or all of the down payment or closing costs.

One example is the PenFed Foundation Dream Makers Grant — a national program that provides eligible military or veteran homebuyers with a 2-to-1 matching grant up to $5,000.

Second Mortgage Programs

Many down payment programs come in the form of a second mortgage, or subordinate lien, with varying payback provisions. The second mortgage is usually funded by a federal, state or local government DPA program, or a nonprofit or an employer that offers down payment help in their market or service area. Some programs defer monthly payments, some forgive portions or all of the down payment help over time or in the future, and some require monthly payments. The terms vary across programs, and sometimes a program may combine different features. Loan officers may have to account for the repayment terms when qualifying a borrower.

Let’s take a look at the three types of second mortgage programs.

Repayable or Soft Second Mortgage Programs

Repayable down payment assistance programs provide the buyer with the down payment they need now so they can buy a home sooner. The funds are delivered at closing often as a 0% interest second loan, but some may accrue interest and some may be amortizing loans. These down payment programs typically range from 5-year to 30-year loans with varying repayment terms. The repayment starts immediately or kicks in after a predetermined period of months or years (a “soft” second).

One example is the repayable NeighborWorks Blackhawk Region Down-Payment Assistance Program, available to buyers in the City of Beloit, WI, which provides a loan of $3,000 minus $500 for their homebuyer education program. The interest rate is 7%  if the buyer opts for automatic payment or 7.25% without automatic payment.

Some repayable programs may have a partial balloon payment, meaning the remaining balance of the original second mortgage may come due at the end of the second mortgage term.

Deferred or Silent Second Programs

Silent Seconds are down payment programs that postpone repayment of the original down payment assistance until one of several events occurs — typically, when the borrower sells, refinances, rents or moves out of the original home purchased. As with repayable DPAs, this structure can help the program administrator fund the program for future buyers.

When buyers plan to live in the home for many years, they will benefit most from the home’s appreciation in value. However, as with most forgivable debt, there may be a 1099 coming in the mail after the buyer sells, refinances, rents or moves out of the home – a taxable event buyers need to be aware of and plan for.

An example of a silent second is one of the City of Napa’s First Time Homebuyer Programs which provides a loan of up to $58,000, or 30% of the purchase price, whichever is less. It’s a 1% simple interest loan with a 30-year term, but repayment is deferred for up to the 30-year term as long as the buyer remains in the home as the owner-occupant.

Forgivable Second Mortgage Programs

With a forgivable second mortgage program, some or all of the original down payment assistance amount is forgiven. When and how much of that down payment help is forgiven may vary, but it’s common for a percentage of the loan to be forgiven each year for a predefined number of years. For example, 20 percent of the loan might be forgiven each year for five years, so after five years the entire original down payment loan is forgiven and the second lien removed. However, if the program’s conditions are not met – for example, the buyer moves out of the home – the loan must be repaid, at times with interest.

One example is the City of Austin “Standard” Down Payment Assistance Program that provides up to  $14,999 of assistance for eligible closing costs, prepaid expenses, and down payment. It’s a zero interest, 5-year forgivable loan and payments are deferred over that 5-year affordability period.

HPI Data About All Types of Programs

• 38% of homeownership programs do not have a first-time homebuyer requirement and are available for eligible repeat homebuyers. (First-time homebuyer is defined by HUD as someone who has not owned a home in three years.)
• 75% of programs are available in a specific local area, such as a city, county or neighborhood. 25% of programs are available statewide through state housing finance agencies.
• 19% of programs allow buyers to purchase a multi-family property as long as the buyer occupies one of the units.
• More than 6% of programs are available for community service workers, including educators, police officers, firefighters and healthcare workers.
• 6% 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.
• 69% of programs in the database are down payment or closing cost assistance. 9% of programs are first mortgages and 8% of programs are Mortgage Credit Certificates (MCCs).
• 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.
• More than 50 percent of programs accept online homeownership education.

Download the infographic and full First Quarter 2018 Homeownership Program Index press release.

In honor of National Military Appreciation Month, our First Quarter 2017 Homeownership Program Index highlights the important programs available to veterans and members of the military.

The number of total down payment programs decreased to 2,454, down by just nine programs from the previous quarter. Approximately 87 percent (87.2%) of programs currently have funds available for eligible homebuyers, unchanged from the previous quarter.

Across the U.S., there are 135 programs with special benefits for veterans or members of the military, making up 5.5 percent of all homeownership programs.

“There are many mortgage ready renters today, but they don’t know it. Often, homebuyers remain sidelined for years due to the down payment,” said Rob Chrane, CEO of Down Payment Resource. “Plus, veterans and members of the military may not know about additional homeownership benefits they can pair with their VA loan. After serving our country, it’s important we in turn support our veterans in achieving their dream of homeownership.”

Veteran and Military Program Availability

Veteran Program Examples

One nationally available program for veterans is the PenFed Foundation Dream Makers program, formed by the PenFed Credit Union in 2001. The program provides a two-for-one matching grant up to $5,000 for military personnel and veterans. It requires 3% down payment and an income no higher than 80% of the area median income in the county where the home is being purchased, but the grant from the Foundation can be used towards the down payment requirement. It does not have to be repaid.

“Since the Dream Makers inception, the PenFed Foundation has provided over $5 million in down payment assistance grants, supporting the purchase of a home by veterans and military personnel,” said Mark Smith, Director of Programs at the PenFed Foundation.

Local communities also offer special programs for veterans. The Atlanta Neighborhood Development Partnership (ANDP) offers a Veterans Program that provides newly renovated homes priced affordably as well as down payment assistance to qualified buyers. The assistance on a qualifying home ranges from $5,000 to $30,000 and there is no first-time homebuyer requirement.

The Florida Housing Finance Corporation offers a Florida First & Military Heroes Program for veterans and active duty military personnel. It provides qualifying buyers with a government (FHA, VA, USDA-RD) ­first mortgage loan at a reduced interest rate. Plus, veterans do not have to be ­first-time homebuyers.

In Phoenix, the Home in 5 Advantage program offers eligible buyers a 2.5% or 3.5% down payment/closing cost assistance grant and provides an additional 1% down payment assistance grant for qualified United States military personnel, veterans, first responders and teachers. The program allows household income of $88,340 and home prices of up to $300,000.

The Texas State Affordable Housing Corporation (TSAHC) Homes For Texas Heroes program provides veterans and other targeted community heroes a first mortgage along with a grant of 3% to 5% of the first loan amount for down payment and closing cost assistance.  Available across the state, the program allows qualifying income up to 115% of the area median income in non-targeted areas and 120% to 140% in targeted areas. Maximum purchase price limits are by county and go up to more than $400,000 in targeted areas. Plus, veterans do not need to be first-time homebuyers.

Data highlights about all types of homebuyer programs

• 63% of homeownership programs have a first-time homebuyer requirement. This is defined by HUD as someone who has not owned a home in three years.
• 76% of programs are available in a defined area, such as a city, county or neighborhood. 24% of programs are available state-wide through state housing finance agencies.
• 5% of programs are available for community service workers, including educators, police officers, firefighters and healthcare workers.
• 5% 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.
• Nearly 70% of programs in the database are down payment or closing cost assistance. 9% of programs are first mortgages and 8% of programs are Mortgage Credit Certificates (MCCs).
• 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.
• More than 50 percent of programs accept online homeownership education.

Download the full First Quarter 2017 Homeownership Program Index press release.