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Homebuying-assistance programs will proliferate with millennials, expert predicts


Downpayment-assistance programs have been around for many years to help homebuyers make downpayments, but the programs are fragmented throughout the country and often changing. Consumers, lenders and Realtors often aren’t aware of the programs or their requirements. In 2008, Down  Payment Resource was founded. The Atlanta-based company has since established a database, which is updated regularly, that matches available programs with eligible properties for sale on multiple listing services. Chief Executive Officer Rob Chrane spoke with Scotsman Guide News about trends in downpayment assistance.  

What are downpayment-assistance programs and how do they differ from piggyback loans?

Rob Chrane, CEO, DownPayment Resource

Downpayment-assistance programs typically come from housing-finance agencies [and] governmental agencies. For example, at the local level, maybe an economic-development department wants to create some housing incentives, and then sometimes nonprofits [do as well]. The idea is to help people overcome the number-one hurdle to homeownership, which is the downpayment. Some of the downpayment assistance may be in the form of a grant. Obviously if it is a grant, [there] is a huge difference between [it and] a piggyback mortgage because there is no repayment at all. A lot of the downpayment programs do need to be repaid under one of three circumstances. One would be when the home is sold. Another would be if the homeowner refinances. A third would be if the homeowner moves out of the house, but keeps the property and converts it to a rental property. These are often referred to as a soft second mortgage. Typically, those do not have any monthly payments. They are just repaid at one of those three events. That is much more preferable than getting a piggyback [loan] because that second lien to make the piggyback,  whether it is a second line of credit or a second mortgage, is definitely going to have monthly payments, and it is going to be an interest rate that is going to be higher than the first mortgage rate.

How long have downpayment-assistance programs been around?

The programs have actually been with us a long time, at least more than 20 years. I can remember them going back to the early ‘90s and maybe before then. They just are not very well known. In our database, we have almost exactly 2,400 programs across the country. They also include some other types of homeownership help. One example that is not downpayment help, but is a great benefit to homebuyers, is what is called mortgage-credit certificates. Those are a direct federal-tax credit as opposed to an interest deduction. There are some variables that determine how much of a tax credit, but the maximum is $2,000 a year for the life of the loan. It is not money upfront to get into the home, but it is money that can add up and be substantial. Then there are programs that are a combination of first-lien mortgage and some kind of downpayment help. The vast majority of homebuyers, particularly first-time homebuyers, have no idea that this help exists.

Are most people using downpayment assistance to complete an FHA loan?

The first mortgage that they are doing would typically be an FHA loan, although there are a lot of opportunities to layer these with a conventional loan. Both Fannie [Mae] and Freddie [Mac] have first-mortgage products that will allow this type of downpayment help. Historically, the first-mortgage product that is usually associated with downpayment assistance would be FHA.

Are there any disadvantages in using these programs?

Bottom line, I would say, there are no disadvantages. It is an extra step in getting your financing together. Not every lender chooses to offer these programs or participate in them. We looked at a sample of transactions, where downpayment assistance was used. We compared the days on market to similar-priced homes in that same market that didn’t have downpayment assistance. In about four or five instances where we tested this, [in] all but one, the days on the market were shorter than a regular listing when these programs were used. It is an extra step. It takes a little more effort, but when you think about the benefits you can gain, why not go the extra effort?  

Do you expect the decline in the use of these programs as the economy improves?

No. I really expect them to be used more. I think what drives it is demographics. We all hear every day something about millennials. That group is just in their early household-formation years. Regardless of your socio-economic class, it is hard to come up with a downpayment. Over the coming years, we are getting ready to have a lot of new homebuyers, and the downpayment is going to be an issue for them. The demand will increase, and I think these programs will proliferate.  


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