Research Report Housing Finance: At a Glance Monthly Chartbook, October 2023
Laurie Goodman, Janneke Ratcliffe, Michael Neal, Jung Hyun Choi, Linna Zhu, John Walsh, Daniel Pang, Amalie Zinn, Katie Visalli, Aniket Mehrotra, Matthew Pruitt, Alison Rincon, Todd Hill, Anna Barcus
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The October edition of At a Glance, the Housing Finance Policy Center’s reference guide for mortgage and housing data, shows historic lows in refinancable mortgages, decreasing serious delinquency rates, although multifamily delinquencies are still elevated relative to the beginning of 2023, nationwide positive house price appreciation, and rising housing equity. Partnering with Down Payment Resource, it features DPA program characteristics, eligibility and potential salvageability by MSA.

Down Payment Resource data to Understand the Impact of Down Payment Programs

How DPA can boost home sales in a high-rate environment

Purchasing a home has become more difficult in recent years. Higher mortgage rates and still elevated house prices have combined to significantly reduce homebuying affordability. And amid higher rates, purchase mortgage denial rates spiked.

Down payment assistance (DPA) is one tool that could help potential homebuyers achieve homeownership. Specifically, DPA could help potential first homebuyers whose share of agency purchase loans has been largely flat since 2020. The most common barrier for accessing homeownership is saving for a down payment. DTI contributes to over a third of purchase mortgage denials (p. 43), and high interest rates have been pushing DTI ratios up in 2022 and 2023. Down payment assistance can increase borrowers’ cash-to-close (CTC) and reduce their debt-to-income ratio (DTI), helping buyers get approved for a purchase loan. Homeownership, in turn, can help families build generational wealth.

Amid the buyer challenges posed by higher interest rates, the Housing Finance Policy Center partnered with Down Payment Resource for our October 2023 special feature to analyze DPA programs over 2022. Down Payment Resource connects homebuyers with the down payment help they need and provides tools for housing professionals to help them along the way. The analysis in this special feature includes key characteristics of DPA programs, shows the share of originations across the 10 largest MSAs that would qualify for DPA, and the share of denied loans that could potentially have been salvaged with DPA. One consistent theme is that DPA targets potential buyers with fewer financial means.

Many DPA programs are designed to help financially constrained households

As of Q2 2023, there are 1,676 active (funded) DPA programs in the US. In 2022, 60.7 percent of programs contribute a set dollar amount to a borrower’s down payment, with a median contribution of $15,000. 22.1 percent of programs contribute a percent of the sales price, on median 10 percent. Another 9.5 percent of the programs contribute a percent of the loan amount, the median contribution in these cases is 5 percent (p. 39).

To better target homebuyers more likely to require greater finance assistance, 72.7 percent of DPA programs impose income limits. 45.3 percent of all programs have an income cap of 80 percent of area median income. In addition, 62.1 percent of programs have a first-time homebuyer requirement. A third of programs have a minimum FICO requirement, the median of which will only give down payment assistance to borrowers whose credit score is above 640 (p. 40).

Almost half of originated purchase mortgages are eligible for DPA

43.6 percent, of purchase loans for 1–4-unit properties in the top 10 MSAs in the US would be potentially eligible for down payment assistance (p. 42). Across channels, FHA and USDA loans are most likely to be eligible at 79.8 and 81.9 percent, respectively. In addition, FHA and USDA loans are generally eligible for a greater number of programs than Conventional or VA loans.

DPA could have potentially helped salvage thousands denied a purchase mortgage

Across the top 10 MSAs, 30.7 percent of denied loans could potentially have been salvaged with DPA. For a loan to be potentially salvageable, a purchase loan applicant must be eligible for a DPA program but primarily denied the mortgage due to DTI or CTC.

Over the 10 largest MSAs, approximately 46,000 denied applicants were potentially salvageable (p. 44 and 45). In seven of the 10 MSAs, denied FHA loans had a greater likelihood of being potentially salvageable with DPA. In the other three MSAs, denied USDA loans had the greatest likelihood of being salvageable, although the absolute numbers of USDA loans were small.

Research Areas Housing finance
Tags Housing Finance at a Glance: A Monthly Chartbook
Policy Centers Housing Finance Policy Center