February 25th, 2015 8:57 AM by Jackie A. Graves
Joe Raedle/Getty Images
If you think you can’t
get a deal much better than a 3% down payment on a home, you might be
There are more than
2,000 down payment assistance programs nationwide that can drastically reduce
the amount of money buyers need to pay at closing. But according to some in the
industry, too few buyers and real estate agents know about them.
RealtyTrac, an Irvine, Calif.-based real estate research firm,
along with Down Payment Resource, an Atlanta-based company that aggregates programs
for real estate agents and buyers, recently identified nearly 2,300 down payment assistance
There are limits on
which buyers and homes can qualify for the programs: Those analyzed in the
report had an average household income limit of $104,000 and a maximum sales
price limit on average of $823,000. But even with those constraints, more than
86% of the 78 million single family homes and condos in the U.S. could qualify
for one of them, the report said.
The more lofty the
local real estate values, the fewer properties are likely to qualify. For
example, according to Realty Trac and Down Payment Resource, only about 30% of
homes in San Francisco and New York qualify. But in Wayne County, Mich., which
includes the battered real estate market of Detroit, 94% of homes, nearly 1
million of them, qualify for some form of help.
The lack of awareness of down-payment aid is comparable to the
situation with Veterans Administration housing-aid programs; while many
veterans can qualify for zero-down-payment home loans, experts say too few know about the program.
“Prospective buyers —
or their agents — willing to put in a few minutes of time to find out what
programs are available to them will put themselves in a much better position to
successfully purchase a home,” said Daren Blomquist, vice president at
A second loan to cut closing costs
Down payment programs
are offered through a wide range of organizations — cities or counties, local
housing finance agencies, non-profits or even employers.
A typical down payment
program, known as a Community Seconds, works by adding a subordinate
low-interest or no-interest mortgage to the first mortgage for the purpose of
eliminating or reducing closing costs. The payment is often deferred or
forgiven for each year the buyer remains in the home and sometimes has several
emergency relief provisions for the borrower, though the loans can have a
higher interest rate than the first mortgage.
Other programs include Mortgage Credit Certificates that can
provide up to $2,000 in annual tax credits for the life of the loan. There are
also programs that provide loans to revitalize downtrodden neighborhoods that
have been hit hard by foreclosures.
On average, the amount
of down payment assistance (DPA) RealtyTrac and Down Payment Resource was
For example, on a
$250,000 home with a 3% down payment of $7,500, the closing costs for the buyer
could typically add up to another $13,000, once costs such as loan origination
fees, broker’s commission, title, recording and transfer taxes were factored
in. But a down payment program could lower the closing costs to just $200.
Real-estate pros say
that wider use of down-payment programs could supplement recent efforts by the
mortgage industry and the federal government to draw more buyers into the
market, especially younger buyers struggling to scrape together a down payment.
Late last year, Federal Housing Finance Agency director Mel Watt
ordered Fannie Mae and Freddie Mac to begin buying loans that have as little as
a 3% down payment (or a 97% loan-to-value
ratio), down from its earlier minimum limit of 5% (95% LTV).
RealtyTrac’s Blomquist noted in
November 2014 that for a household with the estimated median U.S. income in
2014 of $54,417 it could take more than 12 years to save up for a 20% down
payment for a home priced at the median value at a typical annual savings rate
of 5.6%, but it could take less than two years to save for a 3% down payment.
Still, the problem, according
to RealtyTrac and Down Payment Resource, is that few buyers and agents know
about possible assistance. According to a NeighborWorks research study, 70% of
American adults don’t even know these programs exist.
assistance tends to suffer from lack of awareness,” Mark Hughes of First Team
Real Estate, in Irvine, California, told RealtyTrac. “Guidelines and specifics
tend to change with economic swings. Agents typically don’t keep up with the
changing requirements,” he said.
Despite the availability of down payment help, some buyers who use down payment
programs still lose out on purchases when they compete with buyers who can put
the traditional 20% down or make all-cash offers. That will change when more
inventory comes on the market, said Greg Smith, a broker at Re/Max Alliance in
Denver, “Overall I think the new low-down programs will help long term, but may
take time to have any real impact,” he told RealtyTrac.
To check and see if a property could be eligible for a program,
you can go to the down payment resource eligibility
10 U.S. counties with most homes qualifying for down payment
Single family homes
in the county
# that qualify for
By DANIEL GOLDSTEIN
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