A recent review of downpayment assistance programs by Down Payment Resource (DPR), in its Homeownership Program Index (HPI), analyzed 2,273 programs, and found that the net number of homebuyer assistance programs increased by 1.6% from Q1 to Q2 2022. The increase marked the third consecutive quarter that homebuyer assistance programs has grown nationwide.
Another recent study by DPR found that a substantial share of mortgage apps were both declined for reasons that can be addressed with homebuyer assistance, and/or eligible for homebuyer assistance programs. Through an analysis of Home Mortgage Disclosure Act (HMDA) data, these apps were declined for either insufficient cash-to-close or disqualifying debt-to-income (DTI) ratios, but were categorized as “potentially recoverable” with homebuyer assistance. DPA’s analysis found that a large share of declined loan files were eligible for homebuyer assistance, 33% of all declined purchase mortgage loan applications were declined for either insufficient cash-to-close or disqualifying DTI ratios, and eligible for homebuyer assistance at the time of declination.
With a growing number of downpayment assistance programs available, it seems that more potential homebuyers need to know about these products are available to them in their time of need to procure the home of their dreams. In these times of affordability concerns in light of record high listing prices and erratic mortgage rates, buyers need whatever edge they can gain in order to compete in today’s market.
MReport had a chance to chat with Rob Chrane, Founder and CEO of Down Payment Resource about the affordability issues hampering many nationwide, and the benefits of downpayment assistance programs.
Chrane has more than 30 years of experience as a top producer and executive in the real estate and mortgage finance industries. Recognizing a unique need, he launched DPR to connect eligible homebuyers and eligible properties with hard-to-find down payment programs.
Throughout the course of his career, Chrane has served with several housing community organizations, including the Urban Land Institute’s Terwilliger Workforce Housing Center, and has worked on numerous Habitat for Humanity homes.
The housing affordability issue seems like a vicious cycle, as inflation and the rise in rates are forces acting against first-time buyers looking to purchase. What needs to change to remedy this issue and break this cycle?
Chrane: Current affordability challenges are the product of issues that have gone unaddressed for years, and are now boiling over. But most significant is the lack of inventory, especially of entry-level housing. In 1980, 40% of new construction homes were entry-level, and four decades later, that number has fallen to just 7%.
Also working against us are the “Four Ls: Legal, Labor, Land, and Lumber” which work against the economics of homebuilding. Until we can incentivize new construction, there will continue to be a dearth of affordable, entry-level housing. Many localities across the country are reevaluating zoning, permitting and other regulations that inhibit the development and preservation of affordable housing, but by definition, that’s a piecemeal effort and will take years, maybe decades.
Do you foresee housing affordability issues lingering throughout the remainder of the year, or do you think the issue will extend beyond?
Chrane: Given the root causes of current housing affordability challenges, it is unlikely to resolve in the next few years.
Besides renting, what are some options you would suggest to a buyer currently shopping in this ever-competitive market?
Chrane: In uber-competitive markets, winning offers for borrowers that don’t have stores of cash on hand to cover appraisal gaps may require difficult conversations, where expectations on neighborhood and purchase timeline need to be reset.
When mortgage professionals have these talks, it’s important that borrowers understand the cost of waiting—that appreciation will likely outpace that borrowers’ ability to save, and that higher interest rates and inventory challenges are very unlikely to improve in the immediate years to come.
Instead of spending years saving up to increase cash on hand, homebuyers should pursue purchasing 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, first-time homeowners, and properties with sales price limits, but this is not true. There is a plethora of programs designed for people of color, veterans, community heroes such as firefighters and nurses, and more.
Are downpayment assistance plans and first-time buyer plans feasible options to turn to in this market?
Chrane: In the current competitive market, it is perfectly feasible to purchase a home with down payment assistance—in fact, well over half a million people have purchased homes with the help of homeownership assistance programs in the last year.
In Q1 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 3,143 U.S. counties, and 10 or more programs available in more than 2,000 U.S. counties.
But that isn’t to say that purchasing a home with homebuyer assistance isn’t without its challenges. As housing professionals, we have enormous influence over the ability of fund-strapped borrowers to achieve homeownership, and we must challenge ourselves to be better informed about the affordability programs available to borrowers in our markets.
To make competitive offers with homebuyer assistance, consumers need both lenders and Realtors to be informed and on board. The best results are achieved by Realtor-loan officer teams who are experienced, able to facilitate a smooth transaction and effectively able to educate and allay the concerns of listing agents and sellers.