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Down Payment Assistance Programs Save Homebuyers More Than $17,000: Report

Written by JD Esajian

Down payment assistance programs are boosting homebuyers’ savings to the tune of more than $17,000, according to a joint report by RealtyTrac and Down Payment Resource. The report, which analyzed the impact of down payment assistance on the cost of buying a home across 513 counties, found that homeowners saved an average of $17,766 over the life of a mortgage loan.

“Homeownership programs not only help buyers overcome the initial cost of purchasing a home, but also produce a compounding positive impact on the homeowner’s saving and wealth-building capability,” said ROB Chrane, CEO of Down Payment Resource.

“In fact, these programs are now the last frontier in the fight to preserve homeownership affordability. Rates are never going to be substantially lower, and home prices continue to trend higher.”

Breaking down the numbers, the report revealed that total savings equates to an average savings of $5,965 on down payments for a median-priced home, coupled with average savings of $11,801 on monthly house payments over the life of the loan for a median-priced home.

The survey shows that down payment assistance programs are covering three percent down in 82 percent of the counties surveyed, with total savings from the programs totaling $12,434 — roughly twice the average three percent down payment of $6,424 on a median-priced home.

“These programs often make the difference between buying a home or not,” said Chrane. “In most cases, the assistance results in a greater financial cushion by preventing homebuyers from liquidating their savings and retirement accounts to come up with a down payment.”

The report shows that four of the top five markets with the biggest down payment assistance savings over the life of the loan were located in California. The top five markets were: Kauai County, Hawaii ($80,148 total savings); Placer County, California ($78,539 total savings); San Francisco County, California ($77,411 total savings); Orange County, California ($74,268 total savings); and Shasta County, California ($70,806 total savings).

The average down payment assistance was lower than three percent the down payment on a median-priced home in 91 of the 513 markets surveyed. According to the report, the markets where a three percent down payment was higher than the average down payment assistance available were: New York County, New York; Fairfax County, Virginia; Salt Lake County, Utah; Montgomery County, Maryland; and Baltimore County, Maryland.

“Saving for a down payment can be difficult for prospective first-time homebuyers given the absence of substantial wage growth in recent years combined with the burden of student loan debt many are struggling under,” said RealtyTrac Senior Vice President Daren Blomquist.

“Even just a three percent down payment requires 14 percent of annual wages on average across the 513 counties we analyzed, and in 67 counties a three percent down payment requires more than one-fifth of annual wages,” said Blomquist.

Millennials Continue To Delay Homeownership

A recent National Associations of Realtors survey reveals that 71 percent of non-homeowners say their debt such as student loans is hindering them from purchasing a home, with more than 50 percent saying they are more than five years away from buying a house. Of those surveyed, the highest share of those postponing homeownership are Millennials — ages 26 to 35.

“A majority of non-homeowners in the survey earning over $50,000 a year, which is above the median U.S. qualifying income needed to buy a single-family home, reported that student debt is hurting their ability to save for a down payment,” said NAR Chief Economist Lawrence Yun.

The survey revealed that 43 percent of respondents had between $10,001 and $40,000 in student debt, while 38 percent owed more than $50,000. Current statistics show that 43 million Americans carry nearly $1.3 trillion in student debt. “Along with rent, a car payment and other large monthly expenses that can squeeze a household’s budget, paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase.”

The report by NAR was joined with the nonprofit American Student Assistance, which surveyed 75,000 student loan borrowers, of which 3,230 responded. According to the report, 67 percent of respondents attended a four-year college, 27 percent attended a graduate/post-graduate school, two-thirds went to a public institution, with 14 percent working part-time but seeking full-time employment.

Among 35-and-younger crowds, the rate of homeownership has fallen to 34 percent, from 44 percent at the height of the housing boom.

“Americans are concerned about this widening inequality,” said Yun. “One of the contributors is that the homeownership rate is at a 50-year low. For most middle -class families, they have always perceived housing equity as their main source of wealth building. But fewer people are participating in homeownership, particularly among the younger generation, and that is tied to student debt, at least according to our survey.”

The biggest issue facing millennial homebuyers is increasing prices for entry-level home. In addition to the availability of entry-level homes listed on the market, which has dropped 43.6 percent over the past four years, the price has risen 5.6 percent over the same period.