Down payment assistance (DPA) is an important tool for helping to qualify borrowers who struggle to to raise enough money for a down payment when buying a home. That’s especially true in the government’s FHA-insured loan program, designed to assist home buyers who aren’t likely to pass muster for conventional financing.
According to the latest quarterly report to Congress from the U.S. Department of Housing and Urban Development (HUD) on the Federal Housing Administration’s Single-Family Mutual Mortgage Insurance Fund, only 58.46% of the loans the agency endorsed were originated without the borrower receiving help for a down payment.
That means more than two in five FHA-mortgages came with some form of DPA. Of those who received some form of DPA, nearly 19% of that aid came from governmental entities, according to a chart buried deep in the report. Relatives pitched in to help 21.5% of the borrowers. But less than 1% came from other sources such as employers.
But, here’s the rub. According to the Urban Institute, a lot more people could have used down payment assistance if they were aware of it.
An October 2023 Urban Institute study, conducted in collaboration with Down Payment Resource (DPR), an Atlanta-based company that tracks assistance programs, found that in the country’s 10 largest metropolitan areas, nearly 83% of all first-time FHA borrowers would have qualified for help with their down payments.
“There’s no way to quantify it, but think of all the buyers who were turned away from their initial meeting with a loan officer because they didn’t have enough money for a down payment,” DPR’s Rob Chrane told NMP. “There has to be a huge gap between the borrowers who received some sort of help with their down payments and those who could have gotten help had they known it was available.”
Urban Institute researchers advocate for a national DPA program that is more robust and intentional at reaching low-income households and households of color. Such a program would include higher income limits for first-generation buyers, multiple pathways for delivering DPA, and sustained federal funding of an amount high enough to advance racial equity.
Meanwhile, the HUD report, which covers the fourth quarter of the FHA’s fiscal year (ended September 30), is a treasure trove of information about the agency’s mortgage activities.
In the fourth quarter of fiscal year 2024, for example, the agency served 137,158 brand new first-time home buyers, including 52,184 minority households. Some 6,600 seniors also were able to obtain FHA-insured home equity conversion mortgages (HECMs), or reverse mortgages, during the period.
In total, the FHA endorsed nearly 212,000 forward mortgages for insurance that quarter, at a dollar volume of $65.5 billion. The purchase loan count was 165,819. At the same time, it endorsed 46,162 refinances, including 24,444 FHA-to-FHA refinance loans and 21,718 conventional-to-FHA refinance loans.
Despite financial hardships caused by an inflationary economy, the percentage of seriously delinquent FHA borrowers who were behind on their payments for 90 days or more declined to pre-pandemic levels in the fourth quarter of fiscal year 2024. Early payment defaults – those who fell behind within six months of closing – also declined, from a peak of nearly 9% in the second quarter of fiscal year 2020 to 1.47% in the fourth quarter of fiscal year 2024.
The quarterly report also details information on the composition and credit quality of new insurance in force. For instance, the average credit score for forward endorsements (not including streamline refinances) stood at 677 in the period, the same as it has been for the prior two quarters.
The 640-679 score range remained the plurality of the distribution at 31.07%. But, its share has generally trended down over the past four years. The share of loans endorsed with 720-plus credit scores edged up 0.30 percentage points from the prior quarter, though, to 21.90%.
About a third – 31% – of all forward purchase endorsements had debt-to-income (DTI) ratios exceeding 50%, a level higher than before the pandemic. Overall, the average DTI ratio edged down somewhat from the previous quarter to 45%.
