What a way to kick off the new year.
On Jan. 1, Freddie Mac expanded its down payment assistance website and search engine DPA One, which originally launched Oct. 16, to include California. The site now has 80 down payment assistance programs to help California home shoppers.
DPA One aggregates down payment assistance programs in a single, standardized tool so that lenders can access and compare programs, according to its October 16 press release.
Freddie Mac said in its press release on the DPA One expansion that a down payment on a home is the single largest hurdle for first-time buyers.
I beg to differ, at least for certain homebuyers here in Southern California. In my experience over the past few years, finding affordable payments on expensive starter homes is the biggest hurdle, particularly for first-time homebuyers. With prices so high, they’re either continuing to rent or moving to cheaper quarters outside of California.
Down payment and closing cost programs have become more ubiquitous in the last several years. Freddie Mac’s tool allows you or your mortgage loan originator to search and do a side-by-side program comparison for assistance programs loaded onto its site.
For example, I searched for a $600,000 sales price in Santa Ana, for a family of four with $100,000 annual household income and a 700 FICO score. DPA One provided 10 search results for my query. Not bad.
After poking around the programs, I could not find a range of down payments available. But I did find varying examples.
One program offered a 3.5% down payment of the sales price, which is deferred and payable when the home sells or is refinanced. That program, from Golden State Finance Authority, also provided for an additional 2% gift for a down payment and closing cost assistance, which does not have to be repaid.
Another program offered a deferred payment second mortgage for up to $80,000, not to exceed 20% of the sales price, from the Affordable Housing Clearinghouse.
Here’s my advice to anyone who tries DPA One. It’s new, so don’t be surprised if the system is a bit clunky.
For example, there are easy logins and registration ability for DPA providers and housing industry professionals. But nothing inside the website is particularly consumer friendly. Consumers, by the way, can easily register as they don’t need a mortgage lender license or mortgage originator license number, for example, to register.
Here are some of the limitations I found when I used DPA One.
For example, a homebuyer can only compare a maximum of three programs side by side even if there are 10 assistance programs to consider.
Consumers also may not understand some nuances within the site’s questions.
For example: What is the difference between annual household income and annual qualifying income?
Applicants might not know that household income can include overtime pay and annual bonuses, for example. Howver, income qualifying for underwriting purposes may not allow this because there isn’t a long enough history.
And what if someone went from a salaried job to a commission job? Unless there is a two-year commission history or the commission is guaranteed by the company, chances are the income won’t be counted.
There are a lot of important income calculation details in which consumers may erroneously think they qualify when they do not.
This is the first ever (to my knowledge) foray of the mortgage giant into consumer-facing products.
If, in fact, Freddie’s (and Fannie Mae’s) endgame is for consumers to eventually go directly to them, the move would dramatically improve payment affordability and reduce settlement charges.
For example: A 30-year mortgage would likely be one-half percent cheaper if mortgage loan originators were excluded. Artificial intelligence and ingenuity are what it will take for consumers to go directly to the mortgage giants. What’s lost in the mix? Services for those consumers when they have questions.
Last year I wrote about another firm Down Payment Resource or at downpaymentresource.com.
Today, the company has 252 agencies in California offering 370 homebuyer assistance programs, 244 of which are currently active and funded (on the DPR site, Sean Moss, executive vice president of product and operations at Down Payment Resources, told me.
It’s worth checking and comparing DPR to DPA One, since Freddie Mac’s site currently has 80 California programs and DPR has three times as many.
Consumers searching these down payment sites are best advised to have a mortgage loan originator alongside who understands the program limitations and nuances. And they know the clarifying questions to ask of the DPA providers.
Freddie Mac rate news
The 30-year fixed rate averaged 6.66%, 4 basis points higher than last week. The 15-year fixed rate averaged 5.87%, 2 basis points lower than last week.
The Mortgage Bankers Association reported a 9.9% mortgage application increase compared to two weeks ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $166 less than this week’s payment of $4,926.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.5%, a 15-year conventional at 5.375%, a 30-year conventional at 5.875%, a 15-year conventional high balance at 6.125% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high balance conventional at 6.5% and a jumbo 30-year fixed at 6.5%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year, fixed rate at 6.875% without cost.
Jeff Lazerson is a mortgage broker and president of MortgageGrader.com and Lazerson Learning. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.
