Down payment assistance programs are being offered to first-time homebuyers across the country in more than 2,400 programs at the local and state level, but they have not had a noticeable impact on homeownership levels in the United States.
Zero-down Federal Housing Administration (FHA) mortgages are more viable and cost-effective, according to a recent issue brief published by the Urban Institute and co-authored by Michael Stegman, Ted Tozer, and Richard Greene. This is why it is a high choice.
“For many years, four out of five FHA borrowers were first-time borrowers,” they write. “FHA has also provided relatively more access to families of color compared to other lending channels, and is the only federally sponsored mortgage program that requires a down payment.”
The group wrote that zero-down options are useless if there is a shortage of “borrowers who can afford mortgages.” However, previous research from the Urban Institute found that “many potential Millennial homebuyers are under 40 years old and do not have a mortgage, but they have the credit characteristics to qualify for a mortgage and can afford a down payment.” This suggests that a lack of housing is the only barrier to homeownership.
Using data from the U.S. Census Bureau's 2022 American Community Survey, the authors found that one-third of rental households, or about 15 million people in total, “pay the monthly cost of an average-priced FHA-insured home.” He estimated that he had enough income to $362,700) at 6% interest. ”
The authors also argue that zero-down FHA programs have less inflation risk when compared to state down payment assistance plans. The latter option was discussed many times by Vice President Kamala Harris during her campaign, citing it as a program she might have tried to implement if elected.
However, the inflation risks of such programs are clear, as “heavy down payment subsidies are essentially one-time income transfers that shift the housing demand curve and are likely to push up home prices to some extent.” write the authors. “In contrast, zero-down mortgages alleviate liquid asset constraints without substantially changing the borrower's income.”
In terms of potential legislative templates, the group details bipartisan proposals introduced by members of Congress during the George W. Bush administration. The proposal would “provide a new 100 percent financing mortgage product to help first-time homebuyers purchase a home by allowing zero down payments.” Financing and financing of settlement costs. ”
Some elements of the plan from 2004 could still work in today's mortgage market environment, they argue.
These include surcharges on mortgage insurance premiums. The volume cap is approximately 10% of the total single-family loan approval based on the previous year's total. Guardrails that suspend the program if the foreclosure rate exceeds 3.5% in a given year. It would subject borrowers to “the same underwriting standards that apply to the broader program and require one-on-one housing counseling from a HUD-approved counseling agency.”
They say some changes will need to be made to the original proposal, including post-crisis consumer protections and loss mitigation options. Incorporation of the latest (and more stringent) FHA underwriting standards. and settlement costs are excluded from the loan.
“The financial crisis, high rents, stagnant wage growth, and other factors prevent many renters from building the savings needed to make a down payment. And for many, this is the only barrier to buying a home. “, the authors say. “Zero-down FHA mortgage options have the potential to support a new generation of homeownership while being cost-effective and minimizing risk to the federal government.”
The prospects for such a plan being discussed have changed significantly since the proposal was announced on October 29th. While Harris discussed expanding down payment subsidies and incentives for home builders as a presidential candidate, President-elect Donald Trump's campaign was primarily focused on addressing these issues. Reduce housing costs by curbing immigration and prioritizing the sale of federal land that will become home to more new housing.
It remains to be seen what the second Trump administration's priorities will be when it comes to housing affordability, but the issue doesn't appear to have had much of an impact on last week's election victory.
