The pros and cons of home downpayment assistance
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Tess Vigeland: The nation’s housing market can’t seem to decide if it’s recovering or faltering yet again. Prices are falling, which would seem to be an opportunity for buyers. But sales of new homes dropped more than 12 percent last month. Part of that blame can go to the fact that you have to have a lot of money on hand to get a mortgage — 20 percent, sometimes more. There are downpayment assistance programs available through non-profits and some state agencies. But Marketplace’s David Gura reports from the nation’s capital, the jury is still out on whether those programs are for good or ill.
David Gura: Adriana Suriano lives in northwest Washington. She’s proud of her home, with its big windows and natural light, hardwood floors and granite countertops.
Adriana Suriano: This building was rehabbed into a new building. So, everything is brand new, which is great. So, I’m the first occupant here in the apartment.
Suriano bought this one-bedroom condo in 2009, for $230,000. Just over 500-square feet, filled with plants and family photos, it’s her first home. She rented for years. And for a long time, Suriano didn’t think she could afford to buy her own place. She makes less than $50,000 a year, working as a case manager for a mental health agency.
But then, a friend told her about a DC-based housing non-profit where she could get her downpayment. It’s a loan she doesn’t have to start paying back for five years — and it’s interest free.
Suriano: The day that I went to go sign the settlement papers, I handed them a $35,000 check.
She combined that with savings and money from her parents, to put $55,000 down.
David H. Stevens: Downpayment is clearly the single biggest barrier to access for underserved families.
David Stevens heads the Federal Housing Agency. It insures billions of dollars of home loans, made by lenders it approves, to first-time home buyers. Those include mortgage loans and backing for downpayments.
Stevens: Put it very simply, if you have a steady job, and you make a paycheck, but you’re a lower-income, middle class or lower middle-class worker, you don’t have a lot of excess disposable income to save up for a downpayment, so you’re locked into a rental cycle that you can never break out of.
Richard Green teaches real estate at the University of Southern California. I asked him if downpayment assistance is risky. Does it indicate that people might not be able to afford the mortgage in the first place? Green says it’s “a real concern.”
Richard Green: If you don’t have the resources to save for a downpayment at all, you certainly don’t have the resources in the event that your roof caves in. The truth is, personally, I think people do need to put some sort of downpayment on a house. I think it’s important to assure their success in the long term.
Janneke Ratcliff is a researcher at the University of North Carolina at Chapel Hill. Over the last decade, she and her colleagues have followed 50,000 low-income home owners.
Janneke Ratcliff: Within the study sample that we follow, there is no difference in default rates between households who got some kind of downpayment assistance and those who didn’t. They both have performed quite well.
What does seem to make a difference is when home buyers take the time to learn about all the costs and responsibilities of buying a home, to decide whether it’s really right for them. Many downpayment assistance programs require counseling and classes. There’s homework. Applicants have to make a budget — and follow it.
Roberto Quercia worked with Janneke Ratcliff on the study. He says people who go through these programs get a broad perspective on what’s involved in buying a home, and they’re less likely to get in trouble as a result.
Roberto Quercia: Receiving pre-purchase counseling makes the default intervention more effective. So, if a family gets into trouble and unable to pay the mortgage, they are more likely to talk to a lender, they are more likely to resolve that in a way that works for all parties.
Richard Green, at USC, still advises wannabe home buyers to put some skin in the game. He says they should try to save for six months, maybe a year. And if they can do that, they’ve demonstrated something important: They may be asking others for help, but they’re capable of helping themselves.
In Washington, I’m David Gura for Marketplace.
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