Buy v. Rent/Good Time to Buy?

Getting More Help With Your Down Payment

Posted on Wednesday, January 12, 2011

Home prices have dropped, and mortgage rates are low. For anyone with the tens of thousands of dollars now required for a
down payment, it's a pretty good time to buy a house. Now, it's even getting easier without that hefty down payment, as
governments step in to help out.
A growing number of state and local governments are now offering what are called "down payment assistance programs," grants or
low- and no-interest loans to first-time buyers or those who haven't owned a house in a few years. The number of programs, now
somewhere around 1,000 nationally, has increased 3% to 5% in the last six months alone, estimates Marc Savitt, president of the
National Association of Independent Housing Professionals, an advocacy group.
And, in a stark reversal, some banks are now far more willing to work with borrowers who need down payment assistance, buyers
who were considered too risky 18 months ago. State housing agencies say they're seeing the biggest spike in lender interest since
before the housing downturn. Florida's down payment assistance agency now works with 65 lenders, up 12% from a year ago,
says a spokeswoman; in North Carolina, the number of participating lenders has grown 22%.
For would-be buyers who qualify, this is a boon. Even with prices depressed, in and around expensive cities like New York and
San Francisco, a 20% down payment is out of reach, yet that's what many banks require. In San Francisco where the median
sales price for a single-family home is $589,000, buyers would fall short with anything less than $117,800. In desirable New York
suburbs, like Montclair, N.J., saving $135,000 for a down payment on the average-priced single-family home isn't just a matter of
padding that decent-sized savings account by, say, skipping lattes and brown-bagging lunches for a year.
Of course, not everyone is eligible for help. These programs are targeted at low- and middle-income buyers who have either never
owned a home, or haven't owned one in a few years. And then the benefits are substantial: Typically, the programs offer up to
$80,000 in loans with interest rates from 0% to 2% to people with little or no money to put down. And then, because participants
often have to get their mortgage through the programs' preferred lenders, the primary mortgage rates are also low, often 0.75% to
1% lower than average rates. That can be a better deal than Federal Housing Administration-insured mortgages, which require
annual mortgage insurance and an upfront fee, and may have higher interest rates.
Even for cash-strapped states like California, these programs are apparently worth the cost. This is a way to boost
homeownership, something they say leads to more jobs and higher home prices. "It promotes affordability, gets people into homes
and improves the economy," says a spokesman at the California Housing Finance Agency. To fund the programs, many states and
municipalities are using money raised by selling municipal bonds. Also helping: A program funded by the Department of Housing
and Urban Development increased its support to local down payment assistance programs by 16% in its last fiscal year to $44 million.
Not everyone is convinced of the wisdom of these programs, particularly for the lenders. "Borrowers who don't put any of their skin
in the game – or very little of it – are more risky," says Keith Gumbinger, a vice president at, which tracks mortgage
data. Such borrowers tend to have higher incidents of default—even if they have prime credit. Not so, says Scott Stern, CEO of
Lenders One, a mortgage banker cooperative. Assisted buyers are a lower-risk proposition these days, mostly because banks are
still lending to borrowers with high credit scores and detailed income documentation.
There is no official database of all the programs in the country, but asking mortgage lenders and realtors, and checking state
housing agency and local government web sites are good starting points. Look for programs that offer grants – they're rarer and
tend to offer less in actual assistance than a loan program, but buyers don't have to pay the money back. Also consider programs
tailored to a professional group. One of the largest is from the California State Teachers' Retirement System, which offers a
deferred low-interest second-mortgage program for current and retired teachers buying homes for up to about $670,000 (see table
for more details on this and several other down payment assistance programs).
7 Generous Down Payment Assistance Programs
1. California Housing Finance Agency's School Facility Fee Down Payment Assistance Program1
What You Get : First-time home buyers or buyers who haven't owned a property for at least three years purchasing a
newly-constructed single-family home or condo receive a grant for $5,180 on average for down payment, closing costs or to pay for
mortgage costs
Income Restrictions : Varies by county; most generous in Santa Clara at up to $124,200 for family of four
Purchase Price : No limit*
Payback Terms : Forgiven for buyers who stay in the home for at least three years
* There are two versions of this program. The second version is most commonly used and places no limit on the purchase price.
Published January 10, 2011
2. California's State Teachers' Retirement System -- the 80/17 Program2
What You Get : Members of CalSTRS, public school and community college teachers and employees, can get two mortgages
-one for 80% of the purchase price and a second for 17%; borrowers put down 3% of their own money
Income Restrictions : No income limit
Purchase Price : Combined mortgages can total up to $650,000
Payback Terms : Interest rates fluctuate and are currently 5.375% and 6.375% and payments on the second mortgage are
deferred for the first five years
3. Florida's Housing Finance Corporation Down Payment Assistance Program3
What You Get : First-time home buyers can get up to $7,500 in down payment assistance
Income Restrictions : Varies by county; in Palm Beach, that's up to $75,400 for a family of four
Purchase Price : Up to $466,125
Payback Terms : Repayment deferred for up to 30 years at 0% interest or in some cases until the house is sold
4. New York City's Department of Housing Preservation and Development's HomeFirst 4
What You Get : First-time home buyers can get up to $25,000 for down payment or closing costs for a one- to four-family home,
condo or coop
Income Restrictions : Up to $63,450 for a family of four
Purchase Price : Up to $729,750 (based on FHA limits)
Payback Terms : A zero-interest loan; borrowers who live in their home for at least 10 years don't need to pay back
5. North Carolina Housing Finance Agency's Down Payment Assistance 5
What You Get : First-time home buyers are those who haven't owned a home in three years can get up to $8,000 for down
payment or closing costs
Income Restrictions : Varies by county; in Mecklenburg where Charlotte is located, it's $53,750 for a family of four
Purchase Price : Up to $220,000
Payback Terms : Repayment deferred for up to 30 years at 0% interest or until house is sold, refinanced, turned into a rental
property, or the mortgage goes into default at which time full payment is owed
6. Mayor's Office of Housing of the City and County of San Francisco Down Payment Assistance Loan Program6
What You Get : First-time home buyers who've never owned a propert can get up to $100,000 or 20% of the purchase price,
whichever is less, for a single-family house, condo or coop
Income Restrictions : Up to $119,300 for a family of four
Purchase Price : Up to $637,645
Payback Terms : Deferred for 40 years at 0% interest from the date of purchase or until the property is sold or rented; the amount
due is the size of the loan plus the appreciation of the property
7. West Virginia Housing Development Fund's Homeowner's Assistance Program7
What You Get : Buyers who haven't owned a home in three years can get up to $15,000 for down payment or closing costs in
Jefferson County, a popular hub for Washington D.C. commuters
Income Restrictions : Up to $102,900 for three or more person household
Purchase Price : Up to $656,775
Payback Terms : A 15-year loan that's deferred for the first five years at 0% interest and shifts to 2% amortized during the last 10
years; if the home is sold or turned into a rental property before this period, borrowers repay the balance in full
Real Estate by AnnaMaria Andriotis

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