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Low Down Payment Programs Attracting Millennials

Down Payment Resource reports that in January, 65 percent of first-time home buyers only put down a zero to six percent down payment, a decrease from 66 percent in December. Among all buyers whose transactions closed in January, 62 percent of those who obtained a mortgage made a down payment of less than 20 percent, the same percentage as in December.

However, the percentage increased for other types of loans. According to Ellie Mae Origination Insights Report, average down payments for January included (1) all loans, LTV 78 percent, 22 percent average down payment; (2) FHA Purchases, LTV 96 percent, 4 percent average down payment; (3) Conventional Purchase, LTV 80 percent, 20 percent average down payment; and (4) VA purchase, LTV 98 percent, 2 percent average down payment.

There are some new programs targeted to homebuyers who do not have adequate money for down payments on a home. Overlooked and disadvantaged communities may also soon benefit from these funds. “Last year, more homes were sold in America than any year since 2006. Yet the housing recovery is bypassing dozens of communities and millions of Americans,” according to the Down Payment Resource, a service that tracks approximately 2,400 homebuyer programs.

By giving buyers an incentive to choose a home in languishing neighborhoods, these programs are catalysts for change, according to Rob Chrane, CEO, Down Payment Resource. “New owners invest in their communities, stimulating growth and community revival. Down payment assistance can leverage a minor investment into turning communities around and putting young families on a path to homeownership.”

Funds for down payments are available through federal programs like the Treasury Department’s Capital Magnet Fund and TARP’s Hardest Hit Fund that may be able to help. In addition, state housing finance agencies are launching new down payment assistance programs to bring the housing recovery to overlooked urban and rural neighborhoods.

In addition, innovative state and local housing finance agencies are the key to turning federal initiatives into local opportunities that improve lives and build communities. The Wisconsin Housing and Economic Development Authority and the Tennessee Housing Development Agency are just two of a number of agencies pioneering the targeted application of down payment assistance to communities and neighborhoods that need it the most.

“The idea here is that neighborhood stabilization requires more than investment; it requires the presence of an invested home owner. This encourages people to buy and to stay and to help build up these neighborhoods,” said Ralph M. Perrey, executive director, Tennessee Housing Development Agency.  

Among commercial lenders, Wells Fargo has expanded its credit criteria to offer more first-time and low-to moderate income buyers the chance to qualify for a loan, according to an article in Builder Magazine. Under the program, credit history includes nontraditional sources such as tuition, rent, or utility bill payments. Borrowers need a minimum credit score of 620 to qualify. Wells launched its yourFirstMortgage program in May 2016, which offers fixed-rate mortgages for a down payment of as little as 3 percent. The yourFirstMortgage program does not have an income limit and is not restricted to first-time buyers.

It seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans. FHA loans remained attractive among Millennials, representing 35 percent of all loans closed in January. “It is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans," said Joe Tyrrell, executive vice president of corporate strategy at Ellie Mae. "Across the board, we're continuing to see strong interest in homeownership from this younger generation.”

About Author: Sandra Lane

Sandra Lane has extensive experience covering the default servicing industry. She contributed regularly to DS News' predecessor, REO Magazine, from 2004 to 2006, covering local market trends, the effects of macroeconomic shifts on market conditions, and "big-picture" analyses of industry-driving indicators. But her understanding of the mortgage and real estate business extends even beyond those pre-crisis days. She is a former real estate broker and grew up in what she calls "a real estate family." A journalism graduate of the University of North Texas, she has written articles for various newspapers and trade journals, as well as company communications for several major corporations.

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