5 Myths About Down Payment Assistance

In my last blog post, I made reference to the fact that our team is making it our mission to help as many renters as we can get off the rental rollercoaster and become homeowners in 2020. After talking with a colleague the other day about down payment assistance, I realized that our mission may create the impression that down payment assistance is only available to first-time home buyers. Not true! That inspired me to think of a number of other misconceptions that people may have about down payment assistance, so without further ado, let's get into the most common myths about down payment assistance. 

Myth #1: You Have To Be A First-Time Home Buyer To Qualify For Down Payment Assistance. FALSE.  While some down payment assistance programs are only available to first-time home buyers, there are still quite a few that are available to current homeowners. In fact, I am now counseling clients who are downsizing to take a look at the down payment assistance options that are available to them and see if it makes sense to use down payment assistance on the purchase of their new home and keep more of the equity from their bigger home for retirement. In some cases, the tax consequences don't work for them, but it's always an option worth exploring. 

Myth #2: Down Payment Assistance Isn't Really "Free Money" - They Make It Up In Hidden Fees And Charges. FALSE. While there are certainly some unscrupulous lenders out there that engage in this practice of pretending to offer free money and then burying the cost in outrageous fees and charges, legitimate lenders don't engage in these schemes. Legitimate lenders must be approved by the Federal and State governments to participate in their down payment assistance programs and must comply with their requirements regarding charges and fees. The Federal government has made home ownership a priority and has appropriated significant money to provide down payment assistance. In fact, according to a government report issued in 2018, the majority of down payment assistance provided to first-time home buyers was in the form of grants or forgivable loans - in other words, free money.

Myth #3: The Process To Get Approved For Down Payment Assistance Is Long And You Have To Jump Through A Lot Of Hoops. FALSE. The underwriting process to get approved for down payment assistance is virtually the same as with a traditional loan -  just with different conditions regarding income, credit score, etc.

Myth #4: No One Ever Really Gets Approved For Down Payment Assistance. FALSE. Currently there are more than 2,000 down payment assistance programs in existence throughout the United States, and the number of FHA-backed loans that used down payment assistance has grown from 30% in 2011 to 40% in 2018, so clearly a large number of borrowers are getting approved for down payment assistance.

Myth #5: Someone Told Me That Using Down Payment Assistance Will Make Me Upside Down On My House. FALSE.  The Center for Household Financial Stability at the Federal Reserve Bank of St. Louis issued a study in 2019 that found that the use of down payment assistance did not negatively affect how much wealth a homeowner accumulated through home price appreciation. And a 2016 study by RealtyTrac found that home buyers who used down payment assistance saved on average $17,766 more over the lifetime of their mortgages than those who didn’t.

So, hopefully this has helped address some of the misinformation that's swirling around out there about down payment assistance. The Bottom Line: It's Free Money, So Go Get It.

Getting Off The Rental Rollercoaster in 2020

A few months ago, I came across a staggering statistic that made my jaw drop: According to a 2018 CNBC report, it will take about 6 ½ years for today's renter to save for a mortgage down payment.

I thought surely that statistic had changed in the last 18 months. I did a little digging online, and sure enough, that statistic is still a good one. And as I did more research, I came across another shocking statistic: A 2017 Zillow survey of 10,000 American renters found that 2/3 of them cited saving for a down payment as their largest obstacle to owning a home.  I suddenly realized that we have a new housing crisis - not like the one that started in 2008 - but one that has the potential to be as big and damaging as that one. I'm talking about a housing crunch that is being caused not only by a lack of affordable homes but also by a lack of home buyers that can scrape together the money for a down payment. 

The lack of affordable homes and inability of renters to save for a down payment has in turn caused rental rates to skyrocket in some areas. For example, in a city near us, the average rent for a 3 bedroom apartment is $2,850/month. The average mortgage payment in that same city is $2,250. No wonder it's taking renters so long to save up for a down payment! How is a person supposed to make that kind of rental payment, cover a car payment, a student loan payment and all of the other expenses that crop up every month and still have anything left over for a down payment?

After meeting with my real estate team, we decided to make it our mission to help as many renters as we can get off the rental rollercoaster and become homeowners in 2020. We then brainstormed the best way to do that and agreed that down payment assistance and 0% down programs were the best way. Our team has immersed themselves in learning everything they can about the available programs, and every week I am surprised by how versatile these programs are and how many people qualify for them. So over the next few months, my blog is going to focus exclusively on these programs. If you are already a homeowner, please don't assume that these blog posts won't apply to you. If you have a family member, friend or co-worker who is currently renting, then be kind enough to share my posts with them. We all have an obligation to help people in our community get off of the rental rollercoaster.