“It would take a typical borrower 27 years to save for a 20 percent down payment; 13.6 years to save for a 10 percent down payment.”
- Silicon Valley Association of Realtors San Jose Mercury News
Interest rates remain the lowest they have been in generations. Still, few potential first-time buyers are taking the leap into home ownership. The down payment is the hurdle they need to clear. The way things are going, it may be a long time before they do. It doesn’t have to be this way. REX HomeBuyer can help.
Public policymakers are trying to help by lowering the down payment barrier. The recent news that Fannie Mae and Freddie Mac are going to back 3% down loans is welcome news to potential US homebuyers, but isn’t going to help in high-priced California markets. The 3% down payment only applies to conforming mortgage loans. That is, those under the $417,000 principal cap. The median-priced home in the nine Bay Area counties is $601,000. This puts financing of these homes in the super-conforming category where buyers are required to put down at least 10% for Fannie or Freddie-backed loans.
The down payment problem is compounded by other challenges to affordability. Many would-be homebuyers are saddled with large non-mortgage debt. The payments on student loans and car financing add up to a significant portion of these young families incomes. This debt makes it difficult for them to support the monthly payment on a home purchase even if they have the gross income to qualify. Lowering the down payment percentage required doesn’t help here. It increases the amount the buyer has to borrow which in turn increases the monthly payment and makes it more difficult to qualify for the loan. That’s true even in the less expensive areas.
RealtyTrac recently analyzed affordability in more than 500 counties nationwide, looking at the impact of lowering the down payment for conventional loans.
“For those borrowers with the average student loan debt and average car payment, putting just 3 percent down means monthly house payments are affordable in less than half (48 percent) of all county housing markets nationwide.”
For buyers at the bottom of the market, there are some down payment resources available. Usually focused on lower-income buyers, these programs are getting more attention and can provide $50,000 or $100,000 in down payment funds or closing costs in high priced areas. Anyone who earns above 120% of the median income, however, is left out.
There is one down payment program that is available to buyers of almost every income and location. REX HomeBuyer can provide up to half of the 20-25% down payment required on super-conforming and jumbo loans. The money isn’t a grant or loan; it’s an equity investment. Instead of monthly payments or interest on the funds, homeowners agree to share part of the appreciation on the home when they eventually sell. FirstREX expects home values to rise. By making equity investments in lots of homes across the country, the company seeks to earn a consistent return across the portfolio.
The beauty of the REX HomeBuyer program is that it not only lowers the amount of down payment funds required for a home purchase, but it also injects equity in the purchase transaction so that buyers only have to borrow 75- 80% of the home value instead of 90% or more. This lowers their monthly payment and allows them to avoid mortgage insurance. With a smaller prospective payment, buyers are more likely to qualify with a given income even with significant non-mortgage debt like car payments and student loans. REX HomeBuyer allows them to clear the down payment hurdle and get into the home they really want today.