Today’s affordability gap is not just a low-income issue. It is a market-wide challenge where even creditworthy, middle-income earners struggle to overcome basic barriers to homeownership.
Increasing interest rates, low inventory and rising home prices have created substantial challenges for today’s homebuyers. They are confronted with growing affordability pressures which require innovative lending solutions, while existing homeowners have enjoyed significant equity growth.
In response, mortgage lenders and industry innovators are expanding affordability strategies by offering new products that reduce upfront and long-term costs. Among the most promising tools are downpayment assistance (DPA) programs and shared appreciation mortgages (SAMs), which grow increasingly customized to meet the needs of an evolving borrower base.
Understanding market challenges
Since 2022, mortgage rates have more than doubled. This places additional pressure on first-time buyers and households with limited savings. Meanwhile, inflation has eroded purchasing power, and wage growth has lagged rising housing costs. This has contributed to a steep increase in housing cost burdens, even among moderate-income earners.
According to the National Association of Realtors, the median downpayment for first-time buyers is currently 8%. That’s a significant obstacle when the average home price exceeds $400,000. By way of example, an 8% downpayment on a $400,000 home is $32,000.
Even a modest 3% downpayment can require more than $12,000 in upfront cash. For many, this can be the difference between homeownership and continuing to rent. That’s why dual-income households — educators, health care professionals and public service workers — are increasingly turning to solutions that make homeownership more attainable without relying on unstable or budget-limited funding sources.
Borrowers have changed
Historically, downpayment assistance programs were created to assist lower-income or first-time buyers in overcoming the downpayment barrier. However, in today’s housing market, borrower profiles are evolving. Many current DPA recipients are middle-income earners with strong credit and steady employment who struggle to save quickly enough to keep up with the rapid increase in home prices.
Borrowers often fall into a gray area where they are earning too much to qualify for traditional assistance, but not enough to compete in their local housing markets. This includes those burdened by student loan debt, millennial professionals facing steep rents in cities and dual-income households balancing family expenses with long-term savings goals.
To better serve these borrowers, lenders are turning to proprietary DPA programs that offer greater flexibility than traditional options. Unlike programs sponsored by housing finance agencies, municipalities or nonprofits (which may be limited by funding cycles, geographic boundaries or narrow eligibility criteria), proprietary DPA solutions are designed for scalability and inclusivity.
These programs enable lenders to expand their pool of borrowers with faster decisions, simpler guidelines and integrated servicing support that enhances the borrower experience and reduces friction in the origination process. By expanding access and streamlining delivery, proprietary DPA programs help bridge the affordability gap for creditworthy borrowers who might otherwise be left behind.
Shared appreciation mortgages
To boost long-term affordability, more lenders are embracing shared appreciation mortgages. These innovative programs provide borrowers with upfront financial perks, like reduced interest rates or assistance with their purchase, in exchange for a slice of the home’s future appreciation. When the property is sold or refinanced, that appreciation is repaid.
SAMs typically merge a repayable second lien with a lower first lien rate compared to standard Federal Housing Administration or U.S. Department of Agriculture loans. Borrowers agree to share a portion of their home’s appreciation for a fixed duration, often the first five years. After this initial period, the appreciation amount is tacked onto the second lien and amortized over the remaining term of the loan.
Unlike temporary buydowns, which offer short-term relief but often result in payment shock when rates adjust, SAMs provide lasting monthly savings while deferring cost recovery until the home appreciates. In a flat market, borrowers may see limited costs at exit, whereas in appreciating markets, the shared equity model aligns borrower and investor interests.
This strategy not only delivers steady monthly savings but also avoids reliance on high-risk debt layering. It ensures borrowers enjoy long-lasting benefits and creates access for those who have previously faced challenges with affordability.
Strategies for lenders
While the benefits of DPA and SAMs are clear, providing them on a large scale requires infrastructure that can handle complex program logic, real-time eligibility determination and clear borrower communication. Lenders must invest in tools that allow these offerings to be seamlessly embedded into origination workflows and point-of-sale platforms.
Pricing engines must accommodate multiple lien structures. Automated eligibility systems need to surface qualified borrowers in real time. Disclosure workflows should clearly explain the terms of shared appreciation to borrowers and ensure regulatory compliance. The presence or lack of these features affect investor appetite, especially when loans are pooled or sold in the secondary market.
Compliance tracking, automation and integration with loan origination systems and point-of-sale solutions are crucial to making these programs work effectively at larger scales. Strong capital market relationships can also help ensure these loans remain salable, supporting the long-term viability of lenders’ affordability strategies
A broader vision
Affordable lending is no longer defined by rates alone. It’s about removing entry barriers, mitigating long-term cost burdens and supporting borrower success through every stage of the homeownership journey.
As borrower demographics and economic realities evolve, lenders must:
- Design products for a broader spectrum of income levels
- Align short-term affordability with long-term equity opportunities
- Integrate housing policy, education, and credit innovation into lending strategies
DPA and SAM offerings, while transactional in nature, represent a broader shift toward financial inclusion. By creating pathways for underserved-yet-qualified borrowers, the industry can improve borrower outcomes, reduce early default risk and contribute to long-term wealth creation.
The affordability challenges in today’s market are complex but not insurmountable. With flexible tools like DPA and SAMs, lenders can enhance access to homeownership while fostering financial stability.
Lenders who successfully operationalize DPA and shared appreciation products will be best positioned to meet the moment, delivering scalable affordability in an increasingly competitive market. By doing so, they not only gain a strategic advantage but play a vital role in strengthening the American housing system.
