The U.S. housing market presents both good news and challenges to homebuyers.
The challenge: Younger people face homeownership headwinds not faced by their parents generation. For many, it is more challenging to get on the homeownership ladder today. As discussed in the article - Affordable Housing Solutions - the challenge is shown by the progressively higher housing inflation over generations.
The good news: The flip side of home values outpacing inflation -- this creates amazing long-term wealth for those once they get on the homeownership ladder. The good news is, even with more expensive housing, the value of getting on the homeownership ladder is higher than ever. It is estimated the long-term value of both owning a home and the opportunity cost of renting is $9 million!
For more homebuying suggestions and why home buying is a great option, please see:
About the author: Jeff Hulett is a career banker, data scientist, and choice architect. Jeff has held banking and consulting leadership roles at Wells Fargo, Citibank, KPMG, and IBM. Today, Jeff is an executive with the Definitive Companies. He teaches personal finance at James Madison University and provides personal finance seminars. Check out his new book -- Making Choices, Making Money: Your Guide to Making Confident Financial Decisions -- at jeffhulett.com.
Transitioning from renting to the homeownership ladder can be challenging. This is especially true for first-time homebuyers or those with less wealth or lower-paying jobs. Generally, the top of the challenge list for these homebuyers is the down payment. Mortgage lending best practices suggest having some down payment "skin in the game" is necessary to ensure the borrower can and will pay back the loan.
In this article, we discuss a key homeowner adaptation known as "Down Payment Assistance programs" or "DPA" for short. First, the U.S. Government recognizes the growing problems associated with affordable housing. In fact, the Federal government-owned or conserved mortgage organizations are explicitly directed by the U.S. Congress to implement affordable housing programs.
By the way, those U.S Government mortgage entities go by the names Fannie Mae ("FNMA"), Freddie Mac (FHLMC"), the Federal Housing Administration ("FHA"), the Government National Mortgage Association ("GNMA"), and others.
Down Payment Assistance is encouraged by these government mortgage rule-setting organizations as long as it is a gift or has some reasonable rules for forgiveness. In recent years, states and municipalities (like cities, towns, and counties) have gotten into the DPA-providing business. This local focus makes good sense for a couple of reasons:
Generally, affordable housing is a uniquely local challenge. Local zoning rules, local land development supply, local tax rules, and local real estate market appreciation all play into this uniqueness. Who better to provide DPA assistance than the locality that best knows its own market?!
The localities do have some self-interested motivation. More local homeowners provide more local consumers. These consumers help grow the local economy and increase the local tax base. Homeownership is a win/win for you and your local community!
There is much focus on DPAs from all levels of government, from the Federal all the way down to the most local. Programs and grants are available to help you get on the housing ladder. Many local communities have programs to help you both invest in yourself and your home community!
This article suggests resources to get off to the best homebuying start! We start by identifying a few challenges to overcome:
Deciding on the best home is a complex process. It requires bringing together your own and others' homebuying perspectives. Then,
The sheer volume of DPA programs with their specific requirements may seem overwhelming. Additionally,
The mortgage process and how they work with the DPAs may seem complicated.
Without help, these challenges may cause a prospective home buyer to lose confidence and potentially give up. Not to worry. Next, we provide confidence-inspiring solutions. These solutions start with helping you to be the captain of your homebuying decision process!
Solutions: The best solution starts with the best decision process. In today's data-abundant world, we are more likely to get overwhelmed by too much information than starved for too little information. We need a process helping us curate information in the context of the best decision. Next, we provide a high-level view of a consistent and repeatable decision process. This works for all big decisions, including home buying.
Notice step 1 is "prepare to make a decision." This is done by defining your decision process. It is ESSENTIAL to do this before digging into the facts and details. Following this decision process provides DECISION A-C-T:
Accelerated: faster, less costly decisions. It enables a nimble decision environment.
Confidence-inspired: process causes people to be more confident in the decision, increasing buy-in, and decision up-take.
Transparency-enabled: reporting, documentation, and charts to help communicate the decision.
There are affordable decision science-enabled apps available to help! I suggest using simple and effective decision apps to help you get the facts, decide what is important, and evaluate your choices. I‘ve used Definitive Choice in the past.
Decision apps are like “pocket confidence!” It is reassuring to know where you stand and when to walk away from a home sales negotiation.
If you suspect you may need down payment assistance, the best place to start is with an independent DPA marketplace. A great example is Stairs Financial. They are a technology company that has aggregated most DPA data across the U.S. Think of them as a one-stop shop for DPA information.
When it comes to DPA expertise, not every mortgage lender is the same. Some lenders are more committed to providing DPAs than others. Stairs Financial executive Mike Romano said:
"Some lenders specialize in particular geographies and some are more nationwide. Our customers deserve the best DPA-committed mortgage partners."
Once you define your decision process and understand your options for down payments, next it is time to get pre-approved for a mortgage and work with a realtor buyer's agent to determine the best home-buying alternatives. Follow this link for more information:
Concluding thoughts: Anything worthwhile may present challenges. Homeownership is no different. Homeownership remains one of the best wealth-building generators on the planet. Starting with a great decision process will greatly benefit the homebuying decision and prepare you for a lifetime of great decisions. Getting the best information is critical. Using a DPA marketplace is a great step after defining your decision process.
You've Got This!