Owning a home has long been a meaningful milestone for many Americans. But as the recovering economy continues to drive up home prices and lending standards remain tight, many renters view homeownership as unattainable. Fortunately, there is more than one way to purchase a home.
Homeownership contributes to financial security and stability by offering homeowners protection from rising housing costs, increased savings and purchasing power, the ability to borrow against the equity of the home, and the opportunity to refinance at lower interest rates. Other positive effects identified with homeownership include improved outcomes for children.
Housing counseling is another approach to affordable, sustainable homeownership. When clients decide to purchase a home, counselors assist borrowers in navigating the home buying process, reviewing the loan documentation to avoid mortgage fraud, high interest rates, inflated appraisals, unaffordable repayment terms, and other conditions that lead to loss of equity, increased debt, default, and foreclosure. Foreclosure prevention counseling helps homeowners facing delinquency or default with expense reduction, negotiations with lenders and loan servicers, and loss mitigation.
Recent homeownership rates show that 73.5 percent of owners are white, while African-American and Hispanic homeownership rates remain below 50 percent. Similarly, the homeownership rate for households with very low incomes was 43.8 percentage points below the rate for high-income households. These are long-standing differences. Since the 1980s, federal policies have eased the path to homeownership for low-income and minority families, which potentially benefits both individual households and society at large by countering poverty.
Affordability assistance helps low-income families overcome wealth barriers and achieve favorable debt-to-income ratios that keep monthly payments low. Even small amounts of down payment assistance increase the probability of moving first-time buyers into homeownership.36 Although about one out of five first-time homebuyers receives such help from their families, low-income households are less likely to have this option available. One source of help for these households is the Federal Housing Administration (FHA), which facilitates first-time homeownership for low-wealth buyers. FHA’s minimum down payment requirement is set at 3.5 percent of the contract sales price.
Different Programs and Stats:
*Eligible homebuyers can also obtain assistance with down payment and closing costs through the HOME Investment Partnerships (HOME) and Community Development Block Grant(CDBG) programs. Through these programs, HUD awards block grants to cities and states, who then decide how to use the funds. HOME monies are dedicated to enhancing local affordable housing strategies that increase homeownership opportunities for low-income people.
*Between 2004 and 2008, the American Dream Down payment Initiative (now part of HOME) helped more than 26,000 low-income, first-time homebuyers with the biggest hurdle to homeownership: down payment and closing costs, plus rehabilitation expenses.
*Some buyers are able to lower their overall investment with equity through HUD’s Self-Help Homeownership Opportunity Program (SHOP).