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Demand rises for downpayment help

Surveys by the National Association of Realtors (NAR) and others suggest that saving for a downpayment for a home ranks at the top of the list of obstacles facing homebuyers, particularly as prices have risen to record levels in some metro areas. Buyers, especially aspiring first-time homeowners and families in lower-income brackets, however, have numerous options for downpayment assistance. Scotsman Guide News discussed recent trends in downpayment assistance with Rob Chrane, chief executive officer of Down Payment Resource, which maintains a national database of programs.

Your latest report for the first quarter released this week indicated that the number of programs declined slightly to 2,503 programs nationwide. Is this any cause of concern?

robchraneIt does fluctuate, but it is such a minor fluctuation that we don’t think twice about that. In the percentage of programs that are currently funded, now at 86 percent, that number stays remarkably consistent. 

What does ‘funded’ mean?

Basically, it means that they have money. Sometimes with the local programs and smaller entities, like a city or county, the economic development department, that funding may have an expiration date.

They may utilize all their funds. The program can’t be used until the next funding cycle comes along. That is what that 13 or 14 percent refers to. If there are programs that are done and gone forever, never coming back, we completely take them out of our system. If it is just a question of them being temporarily unfunded, then we leave it in there, and flag it as not being currently funded. That tells us that the program administrator expects it to be active again.

Is it correct to say that the majority of these programs are geared for first-time homebuyers and lower-income people?

The household income limits can vary from low to moderate income, and sometimes a little above moderate income. Certainly 60 to 80 percent of the area median income would cover most of the programs, but it is not uncommon these days to see household income limits of 100 percent area median income or even 120 to 140 percent. There is no set amount. Part of that just depends on how high a cost an area is, and it depends on who the program administrator is, and what their funding mechanism is. Certain types of funding mechanisms may have stricter limits on the maximum household income. Others have more flexibility.

Are most geared toward first-time homebuyers?

We typically see roughly around 36 percent of the programs in our database have no first-time homebuyer requirement. But what is important for people to know too is that even the ones that do have a first-time homebuyer requirement, it is normally defined as not having owned a home within the last three years.

Do you get a sense that downpayment-assistance programs are being used more in home sales because of higher prices?

I don’t have any hard data. It is more anecdotal. No. 1, we know that the amount of programs that housing-finance agencies are funding seems to be growing and, anecdotally, we hear that it is because prices have gone up. The downpayment is always an issue. If prices go up, the downpayment becomes a bigger issue. Obviously, with downpayment help, it can lower a borrower’s loan-to-value ratio. For example, we have done some analyses for a few different lenders where we say, "Let us analyze your last 100 declined loans, and see if any of those could have been closed if downpayment assistance was used."

We look at two reasons for the loan to be declined. One is the debt-to-income ratio is too high. The other reason is that somebody doesn’t have enough cash. A lot of times what we will see for that borrower or that location, that they are potentially eligible for six to eight programs, [and that could potentially lower] the debt-to-income ratio by 5 percent. That is pretty significant for the monthly payment, which affects the debt-to-income ratio. It may affect the mortgage insurance premium, which again affects the payment, and so on.

Is there any data available on the aggregate volume of assistance being given?

That is not something that we are available to do yet. We hope to get to that point. The trouble is trying to keep up with over 1,300 different program administrators who all have different reporting cycles or different reporting requirements, it is hard to keep up with all that information.

Is downpayment assistance a viable option in cities like Seattle and San Francisco where sellers are receiving multiple offers and homes are often listed and sold within a month? 

Certainly in markets where you hear about people lining up and sellers getting so many bids in the first day, in the first week, and if you are also competing with an all-cash offer, then, yeah, that can make it tough or it may eliminate you. It is just kind of on a case-by-case basis. In some cases, you can get pre-approved for some of the programs. Still, in the eyes of the seller, they are probably looking at the buyer and saying, "OK, well, what contingencies come with this contract. Are there no financing contingencies because it is all cash? Is it an 80 percent loan to value?" So, the seller’s perception would likely be the more money somebody is putting down, theoretically the less risk there is.

Again, we don’t have broad data on this. In the limited research we have done, we have never seen where the days on the market are longer. Really, you have to look at each one on a case by case. I am sure that there are situations that have made a transaction take longer, but I think that is more of a perception that it is going to take longer than a reality.  


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