Written By: Jennifer Galvan, Senior Loan Officer with Elevate Home Mortgage and Member of CCAR's Affiliate Committee
With interest rates rising and home purchase prices continuing to escalate, affordable housing options are more vital than ever!
One of the primary reasons people hesitate to buy a home is financial constraints. Many individuals struggle to save for a sufficient down payment, but this shouldn’t be a barrier to homeownership.
Contrary to popular belief, you do NOT need to put down 20% to buy a home. For FHA loans, the minimum down payment requirement is just 3.5%. Furthermore, for conventional loans, first-time homebuyers may qualify with as little as 3% down. USDA and VA loans even allow 0% down payment. A first-time homebuyer is defined as someone who has not held an ownership interest in a property within the last three years, although there are exceptions to this rule.
Now is the time to assist prospective homeowners in realizing the American dream. When interest rates decrease, these potential buyers could be priced out of the market due to heightened demand and bidding wars.
How Can We Assist Them NOW?
There are numerous resources available for homebuyers today, and while it would be challenging to list them all, here are a few notable options along with key characteristics to consider regarding Down Payment Assistance (DPA) programs. Remember, there is a program for EVERY buyer, regardless of income or whether they are first-time homebuyers.
City-Specific Programs
These programs are offered through the specific city where individuals are buying. Many major cities provide assistance programs, although some may have restrictions on first-time homebuyers. Be aware that there might be stipulations regarding approved lenders; some programs allow flexibility in choosing any lender, while others may require using an approved list. It’s important to understand that requirements can differ from city to city, so don’t hesitate to ask questions—what one city mandates may not apply to another.
State and Federal Government Programs
Programs such as those offered by the Texas State Affordable Housing Corporation (TSAHC), Texas Department of Housing and Community Affairs (TDHCA), and the Southeast Texas Housing Finance Corporation (SETH) provide additional resources. Keep in mind that these programs may come with higher rates or fees, which are typically set by the respective entity, limiting lenders’ flexibility. Some of these programs even offer special lower rates depending on if the property being bought is in a targeted area. There’s a MCC, Mortgage Credit Certificate, that gives first time homebuyers a tax credit every year they own the home and hold a mortgage. Which can provide these homebuyers with savings every year for many years to come, the MCC even transfers if the mortgage is refinanced.
Also, be sure to inquire whether the DPA is forgivable, whether it will be added as a second lien, and whether it collects interest. If forgivable, understand the time frame required before it converts to a grant.
Homepage - Texas State Affordable Housing Corporation (TSAHC)
Texas Department of Housing and Community Affairs
Southeast Texas Housing Finance Corporation: SETH
Lender-Specific Programs
In response to the high demand for more accessible home financing options, many lenders have introduced affordable product offerings. Several of these lenders have recently implemented Down Payment Assistance (DPA) programs. Available options include conventional loans requiring 0% down and FHA loans where the assistance can cover the entire 3.5% minimum down payment requirement. Most of these programs are subject to income limits, typically based on the Area Median Income (AMI), which can be easily verified online. Currently, for the majority of the Dallas-Fort Worth metroplex, the 80% AMI is $85,840. It’s important to note that these figures are subject to annual updates.
Agencies
Fannie Mae and Freddie Mac also offer valuable lending products for all homebuyers, including HomeReady, Home Possible, HomeOne, HomeReady First, and Freddie’s 3% Down option. Notably, the HomeReady First product recently became available in the DFW market, allowing first-time homebuyers living in eligible areas to qualify for HomeReady pricing—even if they exceed income limits—and providing thousands of dollars in grant money for closing costs as well as $500 towards a home warranty and $500 towards an appraisal.
Temporary Rate Buydown Options
With higher home payments resulting from current mortgage rates, another increasingly popular product is the Temporary Rate Buydown. This option reduces the effective interest rate on a mortgage for a limited time, typically the first few years. It works by having a seller contribute funds to an account that subsidizes the buyer's monthly mortgage payments. This leads to lower initial payments, enhancing affordability in the early years of homeownership. Some lenders even allow buyers to fund their own temporary rate buydowns.
Options include a 3-year, 2-year, and 1-year buydown period; the longer the term, the higher the associated costs. A significant advantage of a temporary rate buydown is that if the buyer refinances before the funds have been fully utilized, any remaining amount is applied to the loan’s principal balance—ensuring they don’t lose those funds. This structure enables buyers to enter the market now and refinance later when rates drop, simultaneously benefiting from inflation. An Example of a temporary rate buydown would be , if a buyer has a 6.5% rate on a 3 year buydown for year one their rate would be 3.5%. Year 2 the rate would be 4.5% , and year 3 the rate would be 5.5% . By year 4 if the client hasn’t refinanced the rate would go back to the 6.5% for the rest of the loan term. You can see how this can provide a SIGNIFICANT amount of monthly savings to a homebuyer.
Conclusion
It’s our responsibility to leverage all available resources to help our clients purchase a home NOW if the time is right for them. Many prospective homeowners may not have another opportunity when lower rates return, especially if they find themselves priced out of the market due to bidding wars.