|Down payment assistance programs offered by state HFAs and other state and local government entities are critical to supporting sustainable homeownership opportunities for low- and moderate-income consumers, according to a November 15 report from the Urban Institute’s Housing Finance Policy Center. The report, which examines barriers to homeownership, advocates that HFA and industry participants collaborate to better educate consumers about these programs.
Many consumers, the report notes, are unaware of the down payment assistance programs and low down payment loan options available to them. This prevents them from trying to purchase a home because they do not feel they are able to save up for an adequate down payment. In a survey taken by the Urban Institute and the Federal Reserve, 53 percent of renters cited their inability to afford a down payment as the reason they rent, by far the most frequently most cited explanation.
In another Urban Institute survey, conducted with Fannie Mae, over three-quarters of respondents answered that they were either "not at all familiar" or "not too familiar" with down payment assistance programs. In the same survey, a large majority of consumers were unaware that there were low down payment (under 5 percent) mortgage options available in the market.
The report says that down payment assistance and lower down payment mortgages have become increasingly critical to the health of the housing market because fewer Americans have the resources needed to save up for a large down payment. The median loan-to-value (LTV) ratio for purchase money mortgages has increased from 80 percent in 2006 to around 95 percent in 2016. At the same time, home prices and interest rates have increased, making it even more expensive for many working families to purchase a home. Still, the report finds that homeownership remains more affordable than renting for the average family in most areas of the country.
According to the report, there are currently 2,144 state and local government down payment assistance programs in operation throughout the country, including multiple programs in each state. The report examines home purchases in 2016 for 20 different metropolitan areas and notes that, for each metro area, a sizeable percentage of borrowers—ranging from 28 percent in Charlotte, NC to 52 percent in Houston, TX—were eligible to receive down payment assistance through a state and/or local program.
The report concludes by suggesting that more be done to educate consumers about down payment assistance programs and low down payment lending options. It calls on Fannie Mae and Freddie Mac to work with lenders, HFAs, and others in the homeownership lending industry to make such programs better-known and more accessible.
The Urban Institute also published an interactive map of the U.S. which allows users to compare 16 different housing market factors between states. The map also includes a link to each state’s HFA.