Borrowers with good credit need down payment assistance (DPA). Unfortunately, DPA is often marketed only towards buyers with poor credit, which creates an unfortunate have/have-not scenario: houses get purchased by borrowers with poor credit or borrowers with good credit and large savings, but not by borrowers with good credit and low savings, even if these borrowers can afford a monthly mortgage payment. This situation unnecessarily locks borrowers out of the housing market for years while home prices increase.
This situation is also exacerbated by the facts that borrowers with good credit are often advised to save up for a down payment and other options might not be mentioned. These borrowers are sometimes never aware that they could buy a home now with some assistance, and that buying a home now may achieve more in the long run.
That said, why is down payment assistance the better option for borrowers with good credit?
Data collected by Home at Last shows that DPA helps all borrowers accumulate wealth faster by buying now, with down payment assistance, than saving now and buying later. How? Home prices, on average, go up (Home At Last shows overall increase from 2000 to 2017). Sometimes there’s a downturn in the market, even a big one, but homebuyers will likely see price appreciation if they stay in their home for 3–8 years. This means wealth accumulation for borrowers who use DPA and buy now. This also means a higher down payment down the road and very little wealth accumulation for borrowers who rent and save now. This disparity is even greater for borrowers with good credit, who can often get better rates even on mortgages with down payment assistance. This reasoning is supported by Home At Last’s projected numbers that, in a three-year period, a borrower who buys a $300,000 home using DPA will accumulate about $60,000 in wealth more than a renter who spends that period saving for a down payment. Those are significant numbers, particularly for low- to moderate-income borrowers.
Home at Last’s data is substantiated by CBC Mortgage Agency’s own numbers (CBCMA is the company that provides Chenoa Fund, a DPA program), as reported in the National Mortgage Professional Magazine. From 2016 to 2020, 96% of borrowers who used Chenoa Fund had an average home value increase of $27,000. Especially considering how new loans from 2019 and 2020 bring the average down, that’s a really good number. Most of those borrowers are low- to moderate-income, and many with credit scores as low as 620. It is awesome that these borrowers are able to break out of the renting cycle and see real wealth increase. Just as good, some of those borrowers have great credit scores and are realizing the same benefits. Clearly, down payment assistance should be offered to any borrower who needs it and can afford a monthly mortgage payment.
Home and Last’s data and CBCMA’s data fuel compelling arguments that buying now with DPA is the best option for borrowers who can afford a monthly mortgage payment. And, with over 50% of renters seeing the down payment as the primary obstacle to homeownership (Urban Institute), the need for DPA couldn’t be more relevant. The best thing to do now is to bring DPA to more borrowers with good credit scores.
Next week’s article will discuss more reasons why borrowers with good credit need down payment assistance.