As rates threaten to tick back up, we’re seeing both a renewed focus on purchase business and overdue emphasis on down payment assistance (DPA). The Biden administration has made affordable housing a priority, and the industry as a whole is working to close the affordability gap, especially for minority buyers.
State Housing Finance Agencies (HFAs) not only remained open during the pandemic but reported record years in 2020. That’s all purchase business and billions in volume. Additionally, new state and local programs continue to launch in markets nationwide, and over 81 percent of all programs are currently funded and active.
Down payment programs are alive and well across the country, and demand for them is at a record high. So, why do so many loan officers still balk at taking advantage of these opportunities for their buyers?
Let’s take a look at some common obstacles – real or perceived – and how to overcome them.
Paint a complete picture on housing inventory and home affordability
Rising home prices and decreasing inventory were both exacerbated by the pandemic. According to realtor.com’s January 2021 Monthly Housing Market Trends Report, national inventory declined 42.6 percent last year and the national median listing price rose 15.4 percent.
Together, these obstacles are real for first-time homebuyers and hinder their ability to compete in the open market, especially if they need help with the down payment. But we don’t want qualified and prospective buyers to perceive that homeownership is out of reach.
Consider alternative inventory approaches. Our recent Homeownership Program Index (HPI) illustrated a 3 percent increase in the number of programs that allow manufactured housing, and 26 percent of all homebuyer assistance programs now allow manufactured homes.
Agency-owned or municipal-owned properties and land trusts, combined with DPA, can also be affordable options for first-time buyers. And homes that need minor repairs may give buyers the opportunity to compete and to afford a home they can make their own.
"DPA is one way to set yourself apart both with buyers and real estate agent referral partners."
Address confusion about DPA requirements
Sadly, many mortgage-ready buyers sideline themselves due to a perceived lack of down payment. An Urban Institute study found that 65 percent of prospective buyers believe they need at least 15-20 percent down to even consider buying a home, and 76 percent have little to no familiarity with low down payment programs.
Loan officers should counsel first-time buyers about the homebuying process and what down payment help may be available to them. More importantly, homebuyers should be made aware of the down payment requirements for buying a home, so there aren’t any misconceptions.
You don’t have to be an expert to bridge the topic of DPAs, but don’t be afraid to consult with peers that are familiar with these programs. Ask questions. Get educated. Leverage all the tools available from DownPaymentResource.com, from your local DPA providers, from your state Housing Finance Agency (HFA), and from your referral partners. The buyer will thank you in the long run for having a dedicated team in place from whom they can learn, get qualified, and solve their down payment obstacle.
And if you do become a DPA expert through your research? All the better – it’s one way to set yourself apart both with buyers and real estate agent referral partners.
Reframe DPA for reluctant sellers
Sellers and their real estate agents are often misinformed when it comes to low- or no-down payment programs, or they’re distrustful due to a bad experience with a DPA program in the past. Buyers’ agents and loan officers should frame the benefits of these programs in a way that provides reassurance and value.
For example, these program funds can often be used to offset closing costs. This means the seller doesn’t have to pay them, the buyer can make a more competitive and attractive offer, and net proceeds for the seller increase.
Another value-add is most down payment program providers require homebuyer education, so a buyer taking advantage of DPA may be better prepared for homeownership than others.
Equip your borrowers and real estate partners with DPA talking points they can use to educate sellers and their agents, set appropriate expectations and frame the value of the DPA clearly. Sometimes the seller just needs a little more context to overcome hesitations.
Can DPA extend the transaction? Sometimes – but you can minimize delays
DPA may extend the transaction in some cases, as some programs do incur longer timelines. However, it’s certainly not a universal rule and not always the fault of the DPA when delays do occur. Cash to close may not have been fully investigated up front. The application for the DPA may have been started later in the process. Everyone may have forgotten or overlooked the homebuyer education requirement.
There are many reasons why any transaction can be delayed. It’s important to have a schedule in place to ensure the transaction goes smoothly and you avoid preventable delays. Establish a timeline for each DPA you work with in your market because program requirements will differ. And make sure buyers do their homebuyer education class early. The certificates are usually good for a year, so there’s no reason that can’t be done long before they start looking for properties.
Establish yourself as a DPA partner with real estate agents
DPA transactions can add an additional layer of complexity, so agents and loan officers must maintain open lines of communication throughout the transaction.
The problem is many agents have a hard time finding loan officers who are willing to work with buyers who need down payment help, or who even offer down payment assistance programs at all. This is a missed opportunity for loan officers to grow their purchase business and cultivate new agent partnerships.
Loan officers should take the necessary steps to become an approved lender with at least a few program providers in the area. Get some product options on the table and educate yourself and your fulfillment team about the requirements. Then talk to your real estate agent, broker and builder partners and discuss a strategy for new buyer intake.
Loan officers, are you ready to be the DPA expert in your market? New buyers are waiting!
The opinions and insights expressed in this blog are solely those of its author, Melinda Harris, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.