For most first-time buyers, saving for a down payment remains the biggest hurdle when buying a home. Thankfully, housing finance agencies (HFAs) offer down payment assistance to lower-income and first-time buyers trying to save up. While not all lenders offer these programs, we could see more providing these programs due to recent developments from Freddie Mac.
In this article, we'll explore DPA programs and the different types available, discuss recent initiatives by Freddie Mac, and what's on the horizon for DPA programs in 2024!
What Are Down Payment Assistance (DPA) Programs?
Down Payment Assistance (DPA) programs are designed to help home buyers with the upfront costs of purchasing a home–specifically the down payment. These programs are designed to provide financial aid to home buyers, typically in the form of grants, loans, or deferred payment plans.
Types of Down Payment Assistance Programs:
Grants:
- Grants are funds provided to home buyers who do not require repayment.
- They are particularly beneficial for first-time home buyers seeking assistance without adding to their financial burden.
Loans:
- Some DPA programs offer loans with favorable terms, allowing home buyers to repay over an extended period.
- These loans often have lower interest rates, making them more accessible to a broader range of buyers.
Deferred Payment Plans:
- Deferred payment plans allow home buyers to delay repayment until later, usually when they sell the property or refinance the mortgage.
- This provides immediate relief to buyers during the early stages of homeownership but could burden the home buyer later on.
Forgivable Loans:
- These second mortgages are forgiven after a set number of years (usually 5, but up to 15 or 20 years).
- These must only be repaid if the home buyer moves, sells, or refinances too early.
Freddie Mac's Initiative for Standardization
Freddie Mac recently announced that they are helping to make DPA more accessible by standardizing mortgage documents. Historically, different DPA programs had varying subordinate lien documents, confusing lenders and home buyers. The new standardized documents aim to enhance clarity, consistency, and accessibility nationwide.
This standardization simplifies the interpretation of terms and payment plans and increases visibility. Lenders are now more likely to offer DPA programs, expanding access for first-time home buyers.
Plus, the introduction of DPA One®, a platform designed to showcase various DPA programs, further streamlines the process for lenders, housing counselors, and program providers.
Updated versions of the state-standardized lien documents can be found on Freddie Mac's website for the following states:
- Alabama
- Arkansas
- Arizona
- California
- Colorado
- Connecticut
- Idaho
- Illinois
- Iowa
- Massachusetts
- Minnesota
- New Mexico
- South Dakota
- Tennessee
- Virginia
- Washington
Proposed DPA Bills:
Another promising development on the horizon is the proposed $25,000 Down Payment Toward Equity Act. This bill, aimed at first-time home buyers, seeks to make homeownership more accessible, especially for those facing economic challenges. The act proposes grants of up to $25,000, with a special provision for first-generation homeowners to qualify for $20,000.
This unique grant goes against the traditional reimbursement structure seen in tax credits. Instead, recipients receive the funds in cash at closing, providing immediate financial relief. Although the act is still under consideration by Congress as of early 2024, it holds great promise for reducing barriers to homeownership.
Requirements for the Downpayment Toward Equity Act include:
- Being a first-time home buyer
- Being a first-generation home buyer
- Earning less than 120% of the area's median income
- A commitment to residing in the home for at least five years
- Completion of a homeownership education course
In addition, there are other proposed bills focused on helping home buyers, including:
- HELPER Act (Homes for Every Local Protector, Educator, and Responder) Act: This would give eligible first responders, educators, and law enforcement access to no-down payment options.
- First-Time Home Buyer Act: This would give first-time home buyers a $15,000 federal tax credit.
- DASH Act (Decent, Affordable, Safe Housing for All): This would give first-time home buyers a $15,000 tax credit.
- LIFT Act (Low-Income First-Time Home Buyers): This would sponsor low fixed-rate 20-year mortgages for first-time, first-generation home buyers with incomes equal to or less than 120% of their area median income.
Down payment assistance programs remain essential for those who could not afford homeownership otherwise. By understanding the types of DPA programs available and keeping an eye on DPA updates, realtors can play a more significant role in empowering their clients on their journey to homeownership.
