Some would-be home buyers may be able to afford the monthly payments of a mortgage, but they can’t scrape up enough money for the down payment. More than 2,500 government assistance programs nationwide are offering help, and more buyers are taking advantage of the aid.
More than 13% of borrowers who used Federal Housing Administration mortgages in the first three months of this year used government assistance for their down payment, up from 8.6% five years prior, according to recently published FHA data. The number of government assistance programs has doubled between 2013 to 2016.
Kason Wallace, a real estate professional in the Chicago area, told The Wall Street Journal that about 90% of her clients ask about assistance for their down payment. “It has definitely increased,” she says. “People are now more aware.”
Several federal, state, and local programs operate through housing finance agencies and nonprofits, and the programs are structured in many different ways. In general, the programs usually offer a cash amount to qualified buyers, and structure these as a second loan. Some programs will forgive the loan amount after a certain period of time, but others may require a repayment. Borrowers who use the programs may also be charged an above-market interest rate on the mortgage.
For buyers who are using these programs, they often have a small amount or nothing invested in the down payment of their house purchase. That has some housing analysts concerned, who say that gives buyers less incentive to keep up with their payments. Government data does show that those who used government down payment assistance for FHA loans tended to be neglectful at a higher rate than those who didn’t use them.
“Someone who can’t come up with a down payment is far more likely to be living paycheck to paycheck,” John Burns, founder of John Burns Real Estate Consulting in Irvine, Calif., told WSJ.
The FHA tightened standards on some of its programs earlier this year. That move could jeopardize some down payment programs altogether. One such program in jeopardy is called the Chenoa Fund, which has captured news headlines in recent weeks. The program is operated through a mortgage corporation owned by the Paiute Tribe of Utah. The fund has sued the U.S. Department of Housing and Urban Development over its newly issued down payment assistance rules for FHA mortgages. In response, HUD has delayed the implementation until July.