Down Payment Assistance is Fashionable Again?

There are an increasing number of state and local governments nationwide that are now offering down payment assistance programs, grants, or low-interest & no-interest loans to first-time buyers or those who haven’t owned a house in a few years. There are now approximately 1,000 such programs available nationwide, according to the National Association of Independent Housing Professionals. In a somewhat stunning reversal, some banks appear to be more willing to offer down payment assistance to buyers who were previously seen as “too risky.” Florida’s down payment assistance agency now works with 65 lenders, up 12% from a year ago. This is such a blessing to potential home buyers. Even though prices & interest rates are at relative all-time lows; a down payment of 10-20 % is simply out of reach.

How are these programs being funded? Well, some municipalities are using money raised by selling municipal bonds. The Department of Housing and Urban Development also increased its support to local down payment assistance programs by 16% in its last fiscal year to $44 million. Programs like this are seen as a “catch 22,” however. Many industry experts say that’s how the real estate crisis began in the first place; with would-be buyers being over-leveraged into loans where they had none of their own money into the deal. Loans of this type have always been exponentially risky from the lender’s perspective. What are your thoughts?