In today’s housing market, where home prices remain high and savings for a down payment can be out of reach for many, Down Payment Assistance (DPA) programs are proving to be a critical resource for prospective homebuyers. These programs have become a saving grace for those who are struggling to secure the lump sum needed at closing, especially for first-time buyers.
As affordability pressures mount, more buyers are becoming aware of DPA options and tapping into these resources. For instance, siblings in their early 20s were able to close on a $335,000 condominium in New Jersey thanks to a DPA program through the New Jersey Housing and Mortgage Finance Agency (NJHMFA). Despite having good incomes, student loans and car payments left them without the funds needed for a down payment and closing costs. With the help of the DPA program, they secured a 30-year conventional loan at 6.88% interest and a $15,000 second mortgage at 0% interest, which will be forgiven after five years of residence.
These programs are a vital tool for borrowers who lack the savings or resources to make a significant upfront payment. DPA programs come in various forms, including grants, second mortgages, deferred loans, and forgivable loans, with eligibility based on factors like household income and credit scores. With over 2,000 DPA programs available nationwide, offered by state, county, and city housing agencies, as well as nonbank mortgage lenders, there are numerous options for buyers to explore.
One popular option is to layer DPA with Federal Housing Administration (FHA) loans. As of 2023, approximately 40% of FHA home purchase loans included DPA, a significant increase from previous years. These programs help first-time buyers, particularly minorities, secure homes despite the financial challenges they face. For example, the Chenoa Fund, a national DPA program offered by CBC Mortgage Agency, provides options for both repayable and forgivable loans, allowing borrowers to build equity while paying less upfront.
Arrive Home, another national DPA provider, offers a forgivable DPA option with no interest and no monthly payments, with the second lien removed after 36 consecutive on-time payments on the first mortgage. While repayable DPA loans may come with higher interest rates, they allow borrowers to retain their savings reserves while purchasing a home, providing a feasible alternative to renting.
However, navigating the various DPA programs can be challenging. Each program has its own income limits, purchase price caps, and underwriting guidelines, which can prolong the approval process. Additionally, some sellers may be hesitant to accept offers from DPA borrowers due to concerns about appraisal gaps and the buyer’s ability to cover any differences.
Despite these challenges, the demand for DPA programs is expected to grow as more lenders and housing agencies roll out new options or modify existing ones to make them more accessible. As Tai Christensen, President of Arrive Home, notes, “Competition is only going to benefit the consumer, which at the end of the day will get more people into homes. The more innovative programs we can get out there to help a wide swath of Americans, the better the market will be as a whole.”
For homebuyers navigating this tough market, DPA programs offer a path to homeownership that might otherwise be out of reach. By leveraging these resources, more individuals and families can achieve their dreams of owning a home, even in the face of financial challenges.
See original news article here: https://www.housingwire.com/articles/down-payment-assistance-programs-are-a-boon-amid-mounting-pressure-on-homebuyer-affordability/