Down payment assistance: An important step to home ownership

A thriving winter housing market could set the pace for an even busier spring and summer for Wisconsin homebuyers, many of whom could be eligible for federal or state programs to help purchase their dream home.

Statewide in January and February, the most recent data available, sales of existing homes and median prices each increased 7.9% compared to 2015, and new listings decreased 7.5%, according to the Wisconsin Realtors Association. With February home sales up throughout the state and fewer listings making inventory tight, potential homebuyers would be wise to get qualified for lending programs now in order to move quickly when they find a home they’d like to buy. That’s especially important because many programs require having an accepted offer to purchase in order to reserve funds.

Multiple programs exist at the state and local levels to help buyers with down payment assistance. In addition, many loan and assistance programs are stackable, meaning prospective buyers can often qualify for more than one, providing extra purchase power in a competitive housing market.

Downpayment Plus (DPP) – The Downpayment Plus program, offered through the Federal Home Loan Bank of Chicago (FHLBC), is an assistance program for low- to moderate-income households. Applicants must have household income equivalent to 80% or less of the median income for the county where the subject property is located.

In 2016, DPP assistance of up to $6,000 is available from lenders who are members of FHLBC, for use toward down payment and closing costs for purchases of property in any state in which the lender does business. The funds are available on a first-come, first-served basis and cannot be reserved until the borrower has an accepted offer to purchase a home. The borrower must also contribute a minimum of $1,000 toward the purchase.

Under the program, 1/60 of the assistance is forgiven for each full month the borrower occupies the home. (Downpayment Plus is a program from the Federal Home Loan Bank of Chicago. Restrictions apply. Please see the Federal Home Loan Bank of Chicago’s website at www.fhlbc.com for complete requirements. “Downpayment Plus” is a registered trademark of the Federal Home Loan Bank of Chicago.) For more information, go http://www.fhlbc.com.

WHEDA Advantage – The Wisconsin Housing and Economic Development Authority offers 30-year fixed-rate loans with higher income limits than traditional down payment assistance programs, therefore allowing more buyers to qualify. The loans may be used to purchase existing single-family homes or duplexes as a primary residence. Home buyer education is required. Buyers who qualify for a WHEDA Advantage mortgage may also use WHEDA’s Easy Close Advantage, a 10-year fixed-rate loan for use toward a down payment or closing costs. These buyers might also qualify for a Mortgage Credit Certificate (MCC), which provides federal tax benefits for as long as the borrower lives at the property or up to the life of the mortgage. The amount of the MCC is based on the annual interest paid on the mortgage and can be up to $2,000 per year. Tax credits are available to first-time homebuyers who meet the purchase price and income limits. There are also added tax savings for MCC eligible veterans who have an honorable discharge. For more information, go to: https://www.wheda.com/Home-Buyers/Available-Programs/.

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Local programs

Some cities and counties in Wisconsin also offer down payment assistance programs, most requiring repayment when the owner moves out or sells the home. Here are some examples:

  • The Dane County/City of Madison “Home-Buy the American Dream” offers a deferred repayment loan of up to $10,000 in the City of Madison and up to $5,000 for properties located in Dane County outside of Madison to qualified first-time buyers. Income limits are based on the size of the household. Buyers must contribute a minimum of 1% of the sales price of the home toward the purchase of a single-family home, condo or one-half duplex, with a minimum 30-year first mortgage. For more information, go to: http://www.cityofmadison.com/dpced/economicdevelopment/documents/Fact%20Sheet%20HBAD%20040915.pdf
  • The Realtors Association of South Central Wisconsin (RASCW)-Home Start program can be used in Dane, Sauk, Columbia, Dodge, Jefferson, Rock, Green, Green Lake, Iowa, Grant, Lafayette, Richland, and Crawford counties, offering a maximum loan of 3% of sale or $4,000, whichever is lower. Buyers must contribute at least 1% of the purchase price for a single-family home, condo or a two-unit property. Income limits of no more than 80% of the median annual income in the county where the property is located apply. For more information, go to: http://www.rascw.org/resources/housing-foundation/loan-guidelines/
  • The NEWCAP program provides a loan of up to $10,000 based on need, as determined by NEWCAP, toward the purchase price of a home in Florence, Forest, Marinette, Menominee, Oconto, Oneida, Shawano, Vilas, and Brown counties (excluding Green Bay) at zero interest for borrowers making less than 80% of the median annual income in the county where the subject property is located. Buyers must contribute a minimum of $1,000 to the down payment. Funds are available on a first-come, first-served basis and buyers must have an accepted offer to purchase, loan approval from a financial institution, and must complete a buyer education program. For more information, go to: http://www.newcap.org/services/housing/homebuyer-program/
  • NeighborWorks Green Bay offers several down payment and closing cost assistance programs for purchase of an owner-occupied single-family home, condo, or duplex. Funds are subject to availability and buyers must have an accepted offer to purchase, contribute a minimum of $1,000 to the purchase, and must complete a buyer education program. Some of the programs may have income limits or other restrictions. For more information, go to: http://www.nwgreenbay.org/page_005.htm
  • NeighborWorks Blackhawk Region offers several down payment and closing cost assistance programs for the Beloit area. The programs offer forgivable, deferred, or repayable loans for owner-occupied properties. Loan amounts, income limits, or other restrictions vary depending upon the program. For more information, go to: http://nwblackhawkregion.org/we-lend/
  •  Neighborhood Housing Services of Southwest Wisconsin provides assistance to qualified buyers in Richland County and certain towns in Iowa and Grant Counties. The amount of the loan is determined by a buyer’s income and the ratio of affordability of the principal, interest, taxes, and insurance of the property. There is a $1,000 minimum buyer contribution to qualify and loans are limited to homes with a maximum value of $143,000 to $150,000, depending on location. For more information, go to: http://nhsrcwi.org/down-payment-loans/
  • The HOME Consortium program offers a forgivable loan of up to $5,000 based on household need. This program can be used to purchase existing or new homes throughout most of Jefferson, Waukesha, Ozaukee, and Washington counties. There is no minimum borrower contribution to use this program, but buyers must have an income of no more than 80% of the median annual income in the county where the subject property is located. Each participating county has limits on the maximum value of the homes to be purchased. For more information, go to: http://www.homeconsortium.info/home/home-ownership-assistance/

A critical element of the home buying process, especially for younger buyers or those who lack or have a limited down payment, is to be cautious when considering how much to spend. Talk to an experienced mortgage lender to help you determine not only the maximum payment for which you can qualify, but also a monthly payment you are comfortable with, because those two things are not necessarily the same. Consider the cost of the mortgage along with your other monthly expenses and overall financial goals before choosing a home to buy.

Spending time up front to consult with a lender who has extensive knowledge about available down payment assistance and loan programs can help homebuyers reach their goal of buying the home of their dreams at a price they can afford.  

David Clem is a mortgage loan originator and affordable housing specialist at Wisconsin Bank & Trust,

Member FDIC and an Equal Housing Lender. NMLS# 553208. He also serves as president of the Home Buyers Round Table of Dane County, vice president for RASCW Housing Foundation, and board member of RASCW Affordable Housing and Equal Opportunities Committee.

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