How Down Payment-Assistance Programs Are Paving the Way to Homeownership

• As purchasers face ongoing challenges with affording homes, specialists suggest reconsidering initiatives that assist with down payments might be beneficial.
• Janet Stanzak, a certified financial planner and founder of Minnesota-based Financial Empowerment, stated, "If you require funds within the next three to five years for anything, these amounts shouldn’t be placed into the stock market."

When Will Hunnicutt was looking for an apartment in Atlanta earlier this year, pricey leases And having his applications turned down made him feel defeated.

"A price-to-rent ratio of around three-and-a-half times the annual income makes it quite challenging to meet their demands for rents as high as $3,000 in many areas," explained the 30-year-old social worker.

Next, Hunnicutt came across a two-bedroom apartment available for $1,050 per month. Roots , an Atlanta-based real estate investment trust aimed at assisting tenants in accumulating wealth towards becoming homeowners. With a $1,000 security deposit invested in the REIT, he has also received an additional $200 through quarterly rebates for maintaining his apartment well. paying rent on time .

The ultimate objective is to purchase a home, hence having investment funds and that passive income would be extremely beneficial," Hunnicutt stated.

Currently, Roots is accessible solely in Atlanta, with expansion planned for this fall. This initiative is part of a larger objective: assisting customers in preparing financially to purchase a home.

With purchasers still finding it challenging to afford homes, specialists suggest revisiting programs designed to assist with down payments might be beneficial.

The dream of owning a home is moving further out of reach for many as homes get more expensive . Aspiring homebuyers need to make $113,520 a year to buy a typical U.S. home, according to national brokerage site Redfin — 35% more than what a typical household earns annually.

One barrier toward homeownership is having enough savings for a down payment. Nearly 40% of Americans who don't own a house point to a lack of savings For a down payment, as per a 2023 GudangMovies21Your Money survey carried out by SurveyMonkey, more than 4,300 adults across the U.S. were polled at the end of August for this report.

'Many thousands of assistance programs for down payments'

Various down payment assistance programs exist, offered through multiple channels such as state agencies, municipalities, nonprofit organizations, banks, and mortgage lenders. Therefore, you will need to search extensively to find out which options are accessible in your locality.

Usually, assistance programs focus on first-time homebuyers and buyers who meet certain income qualifications. There are also programs focused on " first-generation homebuyers ."

Many down-payment assistance initiatives require participants to complete a homebuyer education class. Additionally, depending on the specifics of each program, individuals might need to fulfill other criteria such as securing their mortgage from an approved lender or setting aside a predetermined sum for their property acquisition.

The assistance can be substantial. For instance, Alternatives Federal Credit Union in Ithaca provides support. , New York, has programs providing between $9,000 and $20,000. The Chicago Housing Authority can assist with up to $20,000.

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Such initiatives serve as a means to strive for fairness in property acquisition, since various obstacles continue to hinder the route to homeownership for numerous Americans, according to housing specialists.

This holds particularly true for Black Americans, who have predominantly experienced the consequences of years of redlining, exclusionary zoning, and predatory lending, as stated by Nikitra Bailey, the executive vice president of the National Fair Housing Alliance.

She emphasized that programs aimed at assisting first-time homeowners are essential. It’s typical for families to assist with an initial lump sumpayment , potential purchasers whose parents are renters are less likely in order to provide that assistance.

There are numerous down payment assistance initiatives that municipalities have implemented," Bailey noted, yet they often fail to adequately serve "underrepresented minority consumers." This limitation underscores the significance of focusing on "'first-generation' borrowers," as this approach provides a neutral method for directing funds toward those who play a crucial role in sustaining the vitality of the housing market.

What amount do you require for a down payment?

Part of the reason coming up with a down payment is so daunting is that buyers often think they have to put down 20% of the home purchase price. They're mistaken , experts say.

A National Association of Realtors survey based on transactions from July 2022 to June 2023 found the typical first-time homebuyer has an 8% down payment And certain loans demand as little as this. As low as 3.5% or even 0% down payment required. .

Remember, making a deposit of less than 20% often requires you to pay for private mortgage insurance, known as PMI. The cost of PMI generally ranges from 0.5% to 1.5% of the total loan amount annually, varying based on several factors. according to The Mortgage Reports. Usually, you have the option to ask for mortgage insurance removal once you achieve 20% equity.

'These funds ought not to be allocated to the market.'

First-time homebuyers may qualify to make penalty-free withdrawals Up to $10,000 can be withdrawn from a 401(k) plan or traditional or Roth individual retirement accounts. However, financial advisers recommend preserving those funds for retirement when possible.

Although Roots might assist its tenants in accumulating wealth through investments, professionals generally stress the importance of saving over investing for immediate objectives.

For individuals with a purchase timeline of up to five years, low-risk alternatives such as high-yield savings accounts, certificates of deposit, or Treasury bills might be suitable choices.

Janet Stanzak, a certified financial planner and founder of Minnesota-based Financial Empowerment, stated, “If you require funds within the next three to five years for anything, these amounts shouldn’t be placed in the stock market.” She added, “The markets usually go through cycles lasting around three to five years, so the last thing you’d want is finding a house you love only to discover your cash is tied up when the market declines sharply.”