The Return of Down-Payment Assistance Programs for First-Time Buyers

Where have all of the down-payment assistance programs gone? What kind of assistance is available in 2014, if any? That’s what a growing number of first-time home buyers want to know, judging by the emails we field every month.

Instead of responding to these questions individually, I thought it would be helpful to publish an update on first-time buyer down-payment assistance programs in 2014. Here is the current state of things.

Down-Payment Assistance for First-Time Buyers in 2014

Where can first-time home buyers find mortgage down-payment assistance in 2014? First the bad news. There are fewer of these programs available today than in the past. During the housing boom years of 1995 – 2006, many financial institutions offered down-payment programs that were designed to entice first-time buyers in particular. In those days, a reasonably qualified borrower could land a home loan with no money down whatsoever.

Back then, even the federal government wanted a piece of the “zero down” market. Consider this blast from the past, published by Bankrate in 2004:

Zero-down home loans have gone so mainstream that the federal government wants to get into the act. Borrowers would be able to take out no-money-down mortgages insured by the Federal Housing Administration under a proposal by the housing department. (Holden Lewis, Bankrate.com, Jan. 22, 2004)

Skip ahead a few years. During the housing crisis and subsequent recession, down-payment assistance programs for first-time home buyers all but dried up. It was part of a broader “contraction” that swept across the housing and mortgage industries. With banks and government agencies reeling from financial losses, there was little money left to put toward down-payment grants and loans.

Aid Programs Making a Comeback at State & Local Level

And now for the good news. At long last, we are seeing a resurgence of down-payment assistance for first-time buyers. Much of it is happening at the state and local level, as opposed to the broader national programs we’ve seen in the past.

Borrowers should begin their research at the city and state government level. Many city, metropolitan, and state government agencies offer special down-payment programs for first-time buyers. They realize the upfront cost is the biggest home-buying hurdle for these buyers. So they offer various types of assistance to aid in the purchase of a house.

Here’s one example. The California Housing Finance Agency (CalHFA) helps buyers in that state through the California Homebuyer’s Downpayment Assistance Program (CHDAP). In short, they offer a deferred-payment “junior loan” up to 3% of the purchase price, which can be used for the borrower’s down payment and/or mortgage closing costs.

In San Francisco, Mayor Ed Lee recently announced an expansion of the city’s financial assistance program for first-time buyers. The housing market in that city — one of the most expensive in the country — has squeezed many low-income and middle-class borrowers out of the market. So city officials have increased the amount of money they are willing to lend buyers, to help them overcome the obstacles brought on by an immense down payment.

Mayor Lee said his city will now lend eligible first-time home buyers up to $200,000 toward the down payment on a home purchase, which is double the previous amount. Even more noteworthy, the assistance loans don’t need to be repaid until the homeowner either sells or refinances the property.

“Our city’s middle class is deeply affected by the housing crunch,” Lee said. “They make too much to qualify for our traditional affordable housing, but not enough to afford much of the new market-rate construction.”

This is just one example of the progressive steps being taken at the local level, all across the country.

California is not alone. Many other states offer similar programs. North Carolina, for instance, has a program called the N.C. Home Advantage Mortgage that is nearly identical to the California “CHDAP” program mentioned earlier.

Wells Fargo Offers Help Through NeighborhoodLIFT

Wells Fargo, the largest mortgage lender in the U.S. at last count, has thrown its hat into this ring as well. They have teamed up with local nonprofit organizations to create the NeighborhoodLIFT program. The program offers down-payment assistance for first-time buyers in select cities, including (at the time of publication) Charlotte, Dallas, New Orleans, and much of Southern California.

According to the company’s website, the “program is available for households earning 120% or less of the area’s median income, adjusted for household size.” It offers down-payment assistance grants of $15,000 – $30,000, depending on the location.

In recent months, Wells Fargo has expanded the program into additional cities while winding it down in others. For a current list of cities where assistance may be available, visit www.wellsfargo.com/mortgage/lift, or do a Google search for “Wells Fargo NeighborhoodLIFT.”

How do you find first-time buyer mortgage programs like these in your area? Search it online, to begin with. Start with your state’s name, followed by the phrase “first-time home buyer.” Do a second search with your state, followed by the phrase “down payment assistance.” Then repeat the entire process with the name of your city and/or county. You have to know what’s out there before you can benefit from it.