Last week we discussed several financial reasons why borrowers with good credit need down payment assistance. I had several other points that I wanted to make, but they didn’t fit the scope and length of that article. As a result, this week’s article includes some miscellaneous reasons and data why borrowers with good credit need down payment assistance.
Pragmatic
Borrowers with good credit are less risky to lend to—therefore, these borrowers should always be considered by lenders when marketing DPA. Besides, lenders take a little more risk when originating loans with a small down payment, so smart lenders should offer DPA to borrowers with good credit anyway to alleviate some of that small risk.
That isn’t to say anything against low-credit borrowers who need DPA, of course. These borrowers can be good investments, particularly with the right program. For example, Chenoa Fund DPA has a slightly lower default rate than FHA loans that aren’t paired with DPA—this is in part because Chenoa Fund has good homebuyer counseling that extends beyond closing.
Additionally, DPA helps protect borrowers in the case of a rainy day. Some borrowers have just enough savings to afford a down payment now, but would drain their savings buying a house; these borrowers may be better off using DPA and keeping their savings for emergencies. All borrowers have unique circumstances, but borrowers need to know their options in order to make the best decision for themselves.
Social
Research shows correlation between owning a home and many social benefits, according to the Journal of the Center for Real Estate Studies.
Here are a few:
- Homeownership has a positive correlation with higher education (as in, children of homeowners are more likely to stay in school and go on to higher education)
- Homeowners are more likely to participate in local and national civic duties (such as participating in local government or being an active voter)
- Homeownership contributes towards stable neighborhoods, which in turn lowers crime
- Homeownership has a positive relationship with physical and mental health
- Borrowers are better off using DPA and accessing these benefits sooner rather than later, particularly if all that stands between them and homeownership is a down payment.
More Financial Reasons
Last week’s message was, summarized, “homeownership is a financial escalator: borrowers are better off getting on the escalator sooner rather than later.”Attom Data has some further information that supports this argument:
- Buying is more affordable than renting in 54% of US counties—it makes little sense to not help borrowers in these counties buy.
- Rent is rising faster than wages in 60% of markets—borrowers in these markets need help escaping the rent cycle.
- Home prices are rising faster than rent in 59% of US markets—borrowers in these markets are served well by buying now and taking advantage of this value increase.
- Buying is more expensive than renting in the nation’s most-populated counties—but renting still doesn’t contribute toward wealth accumulation for borrowers. Borrowers should still be aware of their options (including DPA), particularly if they can reasonably afford the monthly mortgage payment.
This all contributes toward the point that borrowers with good credit ought to know what their options are—and these borrowers need access to DPA to help them take advantage of those options.
To Sum Up
The benefits of homeownership are vast, ranging from social to financial. These benefits shouldn’t be denied to any borrower who can afford a mortgage payment. Borrowers need to be made aware of DPA as an option to help them become homeowners, particularly borrowers with good credit.