HOPING TO OWN A HOME? OPTIONS ARE AVAILABLE
Down payment help is out there, but hot market requires patience
Before you throw in the towel and resign yourself to renting forever, there is help out there — to the tune of 3 to 4 percent of the purchase price — and many people may be surprised to learn they qualify.
S aving for a down payment can be a challenge, so challenging, in fact, that 25 percent of first-time buyers told the National Association of Realtors last year it was the most difficult part of the entire homebuying process.
After all, as the standard wisdom goes, you’re supposed to put down 20 percent of your home’s purchase price. In a market such as Denver, where the median sale price in July was $354,000, that can easily exceed $60,000.
“There are plenty of borrowers out there with good credit quality and the desire to be homeowners,” said Cris A. White, CEO of the Colorado Housing and Finance Authority. “They generally have the cash flow, the ability to make monthly loan payments, but it’s the down payment portion that has been tougher.”
But before you throw in the towel and resign yourself to renting forever, there is help out there — to the tune of 3 to 4 percent of the purchase price — and many people may be surprised to learn they qualify.
Available statewide, CHFA’s 3-percent down payment assistance grants are generally available to one- to two-person households making up to $80,100 and to larger households earning up to $92,100. To qualify at either level, you must have a CHFA mortgage.
Metro Mortgage Assistance Plus, a program established by the city of Denver but offered in 29 cities throughout the metro area, provides 4 percent down payment grants for borrowers earning up to $95,880 for oneto two-person households and $111,860 for larger households.
And while down payment assistance is no magic solution — purchase offers with small down payments are frequently passed over in multiple-bid situations, listing agents say — it’s still worth exploring the options out there, said Rob Chrane, CEO of Down Payment Resource, an Atlanta-based clearinghouse that connects buyers with home-ownership assistance programs nationwide.
“Our position is not ‘Hey, just learn about down payment assistance and your problems are solved,’ ” Chrane said. “But it would be a shame for people to continue to not try and not at least look to see what they would be able to do.
“For all the people who don’t know that these programs exist, and don’t know what they’re really qualified for, out of that significant group, there’s got to be some people it’s going to help,” he said.
Success story
Molly DuBois, 30, first heard about CHFA’s down payment assistance from her lender, Fairway Independent Mortgage Corp.
Giving up one Saturday morning for the required homebuyer education class was more than worth it, she said.
Using a 3 percent CHFA grant to supplement roughly $4,000 she was able to scrape together herself, the dental assistant and single mom closed on an 800-square-foot, twobedroom condo in unincorporated Adams County in June.
“I walked away with nothing from my divorce,” DuBois said. “It definitely helped.”
Of course that doesn’t mean hunting for a house was easy. Over four months, DuBois probably made 15 offers, getting outbid each time by $5,000, $10,000, even $15,000.
“You have to be patient,” she said. “I was throwing money at whatever I could find. I wanted to get somewhere with my daughter. But everything’s meant to be. When the time comes and your bid goes through and your offer gets accepted, everything works for a reason.”
The problem DuBois and many other buyers face: In a competitive market such as Denver, offers with small down payments often get thrown to the bottom of the pile, in favor of all-cash offers or loans with 20 percent or more down.
In many ways, the issue comes down to perception, said Libby Levinson, a broker associate with Kentwood Real Estate and a Denver Metro Association of Realtors board member.
“If they’re not bringing a lot to the table, you know they don’t have a lot in reserves. The concern on the listing side is they are then going to ask for every small item at inspection. If the appraisal doesn’t come in, there’s no wiggle room there and the deal’s going to crash,” Levinson said. “They also don’t appear as financially stable as someone who brings in 20 percent. It’s unfair, but that’s one way that sellers will look at it.”
That’s not to say it’s impossible to buy in the Denver area with down payment assistance, Levinson said.
She recently closed her first CHFA deal where the buyers used a down payment grant on top of the money they had saved, with little problem.
Working with a good agent who can help you prescreen properties and write a clean offer is important, though, Levinson said.
“When I meet with new buyers, especially at certain price points and lower down payments, I tell them be prepared to write four or five or six offers before we get a house,” she said. “I have to keep reminding them that it’s a numbers game.”
Timing also can be crucial when it comes to making an offer with a low down payment, said Heather Heuer, vice president and managing broker at PorchLight Real Estate Group.
Seasonally slow times, when homes typically sit longer on the market and there are more price reductions, are the best time to be out shopping, Heuer said. That includes the late-summer lull, when many people are on vacation and kids are heading back to school.
“If the buyer is prepared and poised to buy between now and Labor Day, they’re going to have a much better shot. Their advantages are going to be in the wintertime, too, when there’s less buyers out there,” Heuer said. “They should definitely not wait until spring — they need to be out there now and be prepared and be really educated about the marketplace and be creative.”
Popular program
Despite the challenging market conditions, CHFA is actually seeing its highest loan volumes in history, White said. Loan reservations are averaging about $8 million a day, with 89 percent of CHFA customers also taking advantage of down payment assistance so far this year. The average CHFA grant is $6,000.
“We’ve been in the home mortgage business for over 40 years,” White said. “In the most expensive housing market we’ve ever seen, for our market to the lower and moderate-income buyers with an average loan size of $200,000, there is significant demand and there are opportunities to meet that demand.”
Since launching in March 2013, Metro Mortgage Assistance Plus has awarded 1,193 grants, in amounts averaging $8,327, according to a spokesman for the city of Denver.
Like CHFA’s program, Denver’s down payment assistance is tied to mortgages with a slightly higher interest rate, city housing manager Doug Selbee said. Borrowers would pay 4 percent at current rates on FHA/VA loans and 4.25 percent for conventional loans, but the down payment grants themselves never have to be repaid. Mortgage buyer Freddie Mac said the average 30-year fixed-rate mortgage was 3.43 percent last week.
Whether the math makes sense is really a case-by-case decision, said Tim Clune, branch manager for The Mortgage Co. in Centennial. On a $200,000 CHFA loan, the difference would be about $60 a month with the higher interest rate.
“You pay a little higher rate, but you’re getting into a home now,” Clune said. “Nobody knows what home prices are going to be like in a year. You’re taking out that risk of what’s going to happen in the future.”
In the Denver metro area, there are at least 63 home ownership programs, a classification that includes down payment and closing assistance, affordable first mortgages and mortgage credit certificates, according to Down Payment Resource.
Of that number, more than half — 54 percent — do not have a firsttime homebuyer requirement. Additionally, programs typically use the HUD definition of firsttime homebuyer, a much broader term that covers anyone who hasn’t owned a home in the past three years, Chrane said.
“Sometimes people just imagine really low-income households and really low-cost homes and distressed neighborhoods,” Chrane said. “Not every program is available in every neighborhood, but there are programs available everywhere.
“Some things you read, people would have you believe it’s just evil to put too little down. The only time it’s evil is when someone isn’t financially prepared.”