Down payment match loans, other incentives, help new homebuyers.
In late 2021, a first-time buyer came to STCU home loan officer Aaron Marsh with an ambitious goal: “Put 3 percent down on a $350,000 house and cap the monthly mortgage payment around $1,800.”
Marsh knew immediately that the numbers wouldn’t pencil out for the member unless they could nearly double their down payment.
“The member couldn’t afford a $350,000 home in a hot real estate market,” Marsh said. With the tiny down payment, the member would have to ante up a hefty mortgage insurance premium each month, killing their dream to get the home they wanted.
So, Marsh recommended an STCU down payment match loan, a silent second mortgage with 0% interest. With the match boosting their down payment to 5 percent, the member trimmed $100 off their monthly mortgage insurance bill, making it possible to acquire a $365,000 home with a total payment of just over $1,800 per month.
“They were thrilled to get the home they wanted,” Marsh said. “The savings you get with a down payment match is wonderful for first-time homebuyers.”
First-time homebuyers must ascend financial mountains that existing homeowners often forget. For one, many landlords have raised rents to recover lost revenue from the Covid-19 pandemic ban on evictions and other costs. For another, single family median home prices have soared more than 29 percent nationwide since 2019, rising from $278,000 to $360,000 as of September 2021, according to the National Association of Realtors. Renters, who have no access to home equity to convert to cash for a down payment, often are left on the sidelines to watch others snatch up new homes when rates are low.
Many lenders offer zero down loans, but most first-time homebuyers do not qualify. They tend to be cash-poor, thankful if they even have the thousands of dollars needed to cover the cost of mortgage insurance mandated by regulators and banks to reduce their risk of loan default.
Homebuyers must pay the mortgage insurance, in addition to the monthly loan payment, when their down payment is less than 20 percent down. The $365,000 home purchased by Marsh’s member would have needed a whopping $73,000 down to avoid the insurance.
“To pay yourself instead of a landlord is huge,” Chris Blotsky says.
Savvy first-time homebuyers often turn to federal and state loan programs for assistance, where those with modest incomes may qualify for discounts on loan rates and help with down payments.
Washington’s Home Advantage Program makes down payment loans that typically don’t have to be paid back until you sell, refinance, or pay off your primary mortgage. The average loan is $10,000, which may carry interest charges. To qualify, you must attend a homebuyer education seminar, meet program income limits, and work through participating lenders.
In Idaho, the Good Credit Rewards program assists qualified applicants with their down payment and closing costs. Applicants receive assistance funds based on need, in the form of a low-cost 10-year second mortgage. The maximum loan amount for down payment assistance is 2.5 percent or $8,000, whichever is less, and applicants must have credit scores of 640 or higher and must contribute at least one-half of a percent of the purchase price.
STCU and other privately owned and member-owned financial institutions have gotten more aggressive in recent years to offer creative options, such as discounts on fees and the down payment match loans, for first-time buyers.
“We want to put people in homes,” says Chris Blotsky, director of STCU real estate origination and sales. “To pay yourself instead of a landlord is huge. It’s the best way for us to help build the local economy, as qualified buyers start building wealth for themselves.”
Blotsky says the credit union’s down payment match program opens doors for many first-time homebuyers, a group that STCU defines broadly as anyone who has not owned a house for at least three years.
The not-for-profit cooperative will match 100% of a member's down payment, up to 5% of the purchase price. STCU charges no interest on the loan, but requires homebuyers, when later they sell, refinance, or pay off their home, to return the down payment match loan amount and the percentage that the home’s value has appreciated multiplied by the amount of the loan.
In other words, if you borrowed 1.5 percent, or $3,000, toward the down payment of a $200,000 home, and then sold the home three years later for $250,000, you would have to pay back the $3,000 original loan plus 1.5 percent of the home’s appreciated value, or $750 of the $50,000 more that the home is now worth. Your total repayment at the time of sale: $3,750.
“The nice part is that members can pay us back at any time,” Blotsky says. “If home values are going up fast, and they want to capture more of that appreciation in their home for themselves, they can buy out STCU early.”
STCU has no requirements to attend seminars to qualify for a down payment match loan, but applicants must meet minimum credit score and income thresholds. In addition to the down payment match loan, STCU also provides a 50 percent off its regular loan origination fee for first-time homebuyers.
“Members appreciate the ability to get into a home without having to wait to save 20 percent for a down payment,” he says. “By taking advantage of the program, they may save money they could need for furnishings and the inevitable update to their new home. I don’t know of any other lender in our region doing this.”
Editor’s note: housing programs and pricing change frequently. STCU accepts no responsibility for programs offered by government agencies or other lenders. For a comprehensive list of down payment assistance programs, visit The Mortgage Reports.