According to the Wall Street Journal, the use of down payment assistance programs, also known as DPAs, doubled from 2013 to 2016. Ten per cent rather than five per cent of homebuyers are using one of more than 2,500 DPAs avaiable. And, even more so, FHA data tells us that 13% of FHA borrowers in Q1 2019, up from 8.6% of FHA borrowers five years ago, obtained government assistance from DPAs.
The Wall Street Journal said, “Those who use DPAs start out with little or no skin in the game (when buying a house.) As a result, some economists and analysts worry that buyers have less incentive to keep making payments if/when times get tough. In recent years, those who used government DPAs for FHA loans were delinquent at a higher rate than those who didn’t.”
Down payment assistance programs were one of many factors that led to the spike in defaults in 2007-2008. Adjustable rate mortgages that could double after just two years were another factor that led to the Housing Crisis, as were slack lending practices.
However, stagnant wages over the last two decades coupled with a strong labor market in recent years have many families now simultaneously able and unable to pay for a house. In other words, many families are able to pay for a monthly mortgage payment while being unable to make a down payment.
The result? More families needing down payment assistance programs in order to buy a house.
Gordon Green with Sentier Research told the WSJ, “We are at a point where real median household income is 3.5% higher than in Q1 2000. Not an impressive performance…but overall, the trend line has been positive for some seven years. Borrowers need those DPAs.”
Kason Wallace, an agent in the Chicago area, told the WSJ that 90% of her clients ask about down payment assistance programs. “It (the demand for DPAs) has definitely increased.”