Here’s how real estate agents can leverage down payment assistance programs to close more deals while make homeownership more accessible to buyers.
Working with buyers isn’t just about helping them find a suitable home; it’s also about making homeownership more accessible by helping your buyers navigate the financial aspect of home buying.
For first-time buyers, the process can feel overwhelming. And, while they could certainly get assistance and resources from a mortgage lender, many buyers feel more comfortable approaching a real estate agent first. This puts you on the front lines of helping people find a way to make homebuying financially feasible.
In the age of high home prices and higher interest rates than we have grown used to, many first-time buyers are struggling to get on the property ladder. As a real estate professional, you have an opportunity to help more people into homes, while increasing your sales figures. All you have to do is show your prospective buyers how to take advantage of available resources designed to help them buy a home.
In this article, we’re going to focus on down payment assistance (DPA) programs. We’ll answer some of the most frequently asked questions from real estate agents, including:
- What is a down payment assistance program?
- What are the benefits of DPA programs?
- And how can my buyers access DPA programs?
When you can explain DPA programs to your buyer leads, you’ll be able to increase your conversion ratio and close more deals!
What Is a Down Payment Assistance Program?
A down payment assistance program is any plan that makes homeownership more financially accessible than a traditional 20% down payment requirement.
DPA can come in several different forms, including:
- Grants. Grants are gifted money. This money does not need to be repaid.
- Government-backed loans with lower down payment requirements. FHA loans, for example, have an option for well-qualified buyers to pay as little as 3.5% down. VA loans and USDA loans both have 0% down payment options.
- First-time buyer tax credits. Tax credits allow buyers to recover some of their down payment and/or closing cost expenses by deducting a portion of those expenses from their income taxes.
- Second mortgages. Second mortgages supplement the primary mortgage. For example, a buyer might borrow 80% of the purchase price through a primary mortgage plus another 10% through a secondary mortgage. This would reduce the amount of money needed out-of-pocket for the down payment.
- Deferred loans. Deferred loans, such as DPA, are second mortgages with deferred payments that only have to be paid when the buyer moves, sells, or refinances.
- Forgivable loans. Forgivable loans, such as DPA, are second mortgages that are forgiven after a pre-determined number of years. These loans only need to be repaid if the buyer moves, sells, or refinances before the forgiveness date.
Some DPA programs are sponsored by governments at the local, state, or federal level. Others are provided by private organizations.
The Benefits of DPA Programs
DPA programs offer several advantages for both individual borrowers and the communities they live in.
Expanded Access to Homeownership
DPA programs make homeownership possible for those who might not otherwise qualify to purchase a property. This provides a valuable asset for the homebuyer, helping to improve their financial stability, build equity, and escape the constant increases in rental rates.
Increased Affordability for Low-to-Middle-Income Buyers
Making homeownership more affordable for buyers who are not financially independent can help put money back into local communities. By reducing the amount required upfront to purchase a home, a buyer might have more cash available to renovate the property. A renovation could mean hiring local contractors, investing in building materials, and adding value to their new home.
Investments in Local Communities
Homeowners have been shown to invest more heavily in neighborhood upkeep than renters. Homeowners may be more likely to maintain landscaping, improve home exteriors, and clean up local green spaces. This all serves to make neighborhoods more inviting and help homes retain their values.
How Do My Buyers Access Down Payment Assistance?
With so many different DPA programs available, there are multiple options for accessing assistance. If you or your buyers are feeling overwhelmed with the many options, you can always contact your local Keller Home Loans mortgage experts for information about the specific programs available in your area.
Having said that, here are some tips on where to look for DPAs and what your buyers can do in preparation for applying.
Where to Look for Down Payment Assistance Programs
The US Department of Housing and Urban Development (HUD) has information on federal DPA programs, as well as links to state governments where you can search for state-specific programs. You can also check with your county and/or city government to see if they offer local DPA programs. And you can search online for DPA grants offered by non-profits.
How to Apply for DPA
The ideal candidate for down payment assistance is a homebuyer with a good credit score and stable income (enough to comfortably cover the monthly ownership expenses, including insurance, taxes, and property maintenance, as well as any other existing debts). This type of borrower has demonstrated financial responsibility and simply needs a bit of help with the upfront cost of the purchase.
Here are the three steps your buyers will need to complete to apply for DPA:
- Get their documents in order. The organization offering the DPA will likely need to see proof of identity, proof of income and assets, and a current credit report.
- Review the eligibility requirements for the specific program. Each program has its own set of requirements. In many cases, the requirements for a DPA applicant are the same as the qualifications for a mortgage borrower. Requirements can include credit score minimums, income caps, and debt-to-income limits.
- Complete the application process. The final step is to apply for the program. In many cases, this can be done conveniently online.
The Bottom Line
Keller Home Loans is committed to serving the real estate agents and brokers who help make homeownership accessible for millions of buyers. We understand the financial hurdles facing homebuyers and want to help you provide down payment assistance program resources that can incentivize your buyers to get on the property ladder as soon as possible.