The Accessibility Factor

Down-payment assistance is bridging the gap between the haves and have-nots

Link copied

Staff Writer

In today's housing market, there are only two types of homebuyers, John Hudson says, the haves and the have-nots. The haves are those with healthy credit scores, a robust financial profile, generational wealth and perhaps previous homeownership experience. The have-nots lack most, if not all, of the aforementioned. And the only way many of those "have nots" can transcend their circumstances is by using down payment assistance programs (DPA).

Hudson, a mortgage loan officer and executive vice president of wholesale for Flower Mound-based Mortgage Financial Services, is a fierce advocate for his buyers to be educated, and take advantage of DPA programs. “Second to affordability, the next thing on a homebuyer's mind is coming up with a downpayment,” he said. “In today’s environment, $20 can make the difference of whether you’re getting a mortgage or not. We see examples that thin where a decimal point of .01 on a borrower’s debt-to-income ratio can change their approval status. Assets matter, and unfortunately, we’re in a tight economy.”

Hudson and his company, MFS, are both affiliated with the Texas State Affordable Housing Corporation, or TSAHC, a 501(c)(3) nonprofit organization that was incorporated in 1994. Per the corporation’s website, TSAHC was created at the direction of the Texas Legislature to serve as a self-sustaining, statewide affordable housing provider.

Although home values in Texas have ticked down a nearly invisible amount from last year – 0.1%, according to Zillow – there are some regions within the state seeing slightly bigger home price reductions, including San Antonio and Austin.

Watch it on The Interest: Who Is Getting Help In Texas

Still, the lower cost of living in the Lonestar State isn't doing homebuyers many favors, since the average yearly income, $57,300, allows them to just barely scrape by. If they were to set aside 30% of their paycheck for housing costs, they would only be able to afford just over $1,400 a month on mortgage payments

Never mind the affordability crisis, Hudson points out the gap between the “haves” and “have nots” amongst different demographics. Homeowner's net worth is $396,200 compared to renters' $10,400, per the Federal Reserve Board’s Survey of Consumer Finances 2019-2022, released in October 2023. And as Hudson says, “You’re either paying your mortgage, or your landlord’s.” Down payment assistance programs, Hudson argues, are a more viable solution and option to close the gap between the haves and have notes and segue borrowers into a home.

Who Fits the Bill?

Most Texans, Hudson argues, don’t know about the inner workings of TSAHC down payment programs or that they might qualify for one or two of the programs. What they also don’t know, Katie Claflin adds, is that there are over 1,500 active loan officers affiliated with TSAHC’s programs. That whopping stat means competition for loan officers with the possibility of clients being whisked away with the promise of a better deal.

Claflin, who is TSAHC’s senior director of communications and development, says that for a loan officer to offer down payment programs to a borrower, their company has to sign up for TSAHC as a participating lender, as well as sign up to be a correspondent lender with TSAHC’s servicer.

So what sets TSAHC apart from state programs? “The beauty about these state products is that they come from a nonprofit, and are silent second liens which means no payment, 0% interest, and in the case of TSAHC, forgivable after 3 years,” said Hudson. “A lot of private DPA products have a second lien that is amortized into the debt-to-income ratios…[TSAHC programs] do come with lower interest rates, very forgivable terms, [and are] pretty easy to qualify for.”

The first step is finding and qualifying borrowers, Claflin says, which means at least a 620 credit score and income eligibility depending on the metro. Most qualifications include being a first-time home buyer, a veteran, or people purchasing a home in a targeted area, which is defined as federally designated areas of slow economic growth where you do not have to meet the first-time homebuyer requirement to qualify for the programs. “A homebuyer will work with one of our participating mortgage lenders and apply to a DPA loan, and attached to that mortgage loan will be 5% of the loan amount as down payment assistance,” she explained. “Homebuyers can elect to receive the DPA as a grant, which means they never have to pay it back, or as a three-year deferred, forgivable second lien, which means as long as they stay in the home and don’t refinance for three years, it converts into a grant.”

Kayla Butler, a loan consultant with loanDepot based in Katy, says that about 40% of applications she sees come across are asking for some kind of assistance or they're asking for a bond program. “I’m seeing more Hispanic and Black borrowers that ask for DPAs, as well as people around ages 25 and 27 who are first-time buyers,” Butler said.

Jake West, a loan partner with Gateway Mortgage, agrees. “I see a lot of first-time buyers, depending on the area… I also work with a lot of Hispanic agents and borrowers because many have been told that they can’t buy a house, or have been told by other lenders that it’s not going to work,” he said. “I’ve also seen many military borrowers either coming home or getting transferred take advantage of programs.”

West, who was recognized as a top three TSAHC originator for 2023, assisted 50 home buyers last year and originated more than $11.9 million in mortgage loans.

Butler says most borrowers she works with are between ages 25 and 27 first-time buyers

Pam Anderson, a senior loan officer with Supreme Lending, says that the average age of borrowers she handles when it comes to DPA is around mid-twenties to early thirties. “The good thing is that Texas has different markets, Dallas-Fort Worth homes are getting pricier and inventory is so low still, but people are branching out to those smaller areas with lower prices or targeted areas,” Anderson said.

“I see a lot of first-time buyers, depending on the area… I also work with a lot of Hispanic agents and borrowers because many have been told that they can’t buy a house, or have been told by other lenders that it’s not going to work. I’ve also seen many military borrowers either coming home or getting transferred take advantage of programs.”

> Jake West

Why the resistance?

Lenders who work with borrowers taking advantage of down payment assistance programs acknowledge that the loans aren’t as lucrative as other traditional products. But lower comp is better than no comp at all, especially in a beggars can’t be choosers market. “The max comp to the broker is only 150 basis points, whereas regular loans could be worth up to 275 basis points based on the comp plan. Originators make less on a per-loan basis,” Hudson explained. “I’d argue that establishing a strong referral relationship with DPA borrowers will supplement your business. Word of mouth is a huge marketing tool.”

Word spreads fast. Hudson’s seen the same families come back to his company, or recommending friends. It’s free referrals, and it’s better if the borrower understands what to ask for based on their friend or family’s experience using a specific program.

Hudson also says that education needs to be improved when it comes to both borrowers and originators knowing the best options. West shares the same observation. “Usually I have lunch meetings with real estate agents [where we] talk about education and about all ways to get someone into a house,” he said. “Now I find that I get calls daily from real estate agents and buyers about DPA…the game changes when you remind people it’s about getting people to stay in Texas and build a community, and build equity.”

Anderson says that working with DPA borrowers sometimes requires hand-holding during the process. “I once worked with a borrower for 6 years and was able to help them buy using DPA after all that time. There have been many situations where I’ve worked with borrowers for years to help them build better credit or improve their financial situation,” Anderson said. “I deal with a lot of first-time home buyers, and I always tell my borrowers if they qualify for DPA whether they need it or not… in this day and age even buying a new refrigerator breaks the bank…many people can’t afford closing costs.”

Claflin says as someone working on the back end, she’s noticed several myths arise about the programs. “People think it’s too complicated or takes too long and delays closings, but that’s not true. The average closing time w/ TSAHC programs is 30 days,” Claflin says. “It’s a couple of additional forms, but no additional inspections or appraisals.”

Anderson says that most buyers she sees need to be made aware of what DPA even is, which emphasizes the need for originators to educate louder and wider. “Some of them are pretty clueless,” she said. “They walk in and ask ‘What can I get?’ The last thing I saw that was free was back in the Obama days when every first-time buyer got $8,000 back on their tax returns.”

“The beauty about these state products is that they come from a nonprofit, and are silent second liens which means no payment, 0% interest, and in the case of TSAHC, forgivable after 3 years.

> John Hudson

Jumping Aboard the DPA Wagon

TSAHC offers several DPA programs, each a bit different than the next, making it easier for a wide amount of borrowers to fit the mold. One of its most popular programs is a bond-funded assistance program, which acts as a deferred, forgivable second lien which is 4% of the loan amount, as well as a lower interest rate on the first lien loan. Claflin explains that since it’s bond-funded, the assistance eventually taps out and is limited supply. This time around, 270 homebuyers took advantage of $80 million in funded loan volume as of Feb 23, 2024, Claflin says. Why so fast? Because eager loan officers are anxiously anticipating programs to re-open and ready for their borrowers to take advantage of.

Other programs offered by TSAHC include a Mortgage Credit Certificate Mortgage Credit Certificate (MCC), a federal program where borrowers get a tax credit matching a certain percentage of the mortgage interest they pay. This credit is given back to the borrower come tax refund season. “The MCC is also cyclical like the bond program, so it runs out,” Hudson explained. “Last year, MCC was worth 20% of the interest a borrower pays, meaning if the interest was $20,000, the borrower would have gotten back $4,000 as a tax credit – not a deduction – but an actual credit that is applied towards their federal income tax returns.”

And the DPA variations continue. TSAHC also has two similar DPA programs called Homes For Texas Heroes, which is for teachers, firefighters and EMS personnel, police and correctional officers, and veterans, and Home Sweet Texas, a loan program for Texas home buyers with low and moderate incomes.

“The bond program is limited but is the best option and my personal pick that I try to get my borrowers in,” said West. “The bond program runs about twice a year… I estimate that over half of my clientele uses DPA programs from TSAHC in general.”