The maze to get down payment assistance must be simplified

It takes more than having enough income to make the monthly mortgage payment to afford a new home.

Standards might not be what they once were in the mortgage industry, but buyers still must come up with a down payment.

Qualifying for a mortgage is about income, almost always the take-home pay from a job. Coming up with a down payment is about saving or tapping into some family wealth, which of course only works if you or your family has any wealth.

Raising a low-income family's monthly income enough to support a 30-year mortgage can be hard.

Helping someone come up with a down payment, on the other hand, is pretty cheap in many cases. We just need to make it easier.

There is down payment assistance available. But the well-intentioned efforts in the state so far have led to the creation of more than 70 such assistance programs, by the count of the St. Paul-based nonprofit Minnesota Homeownership Center (MHC).

Even the pros, the state's real estate agents and mortgage bankers, find the down payment assistance landscape here a confusing mess.

That is why the MHC, along with groups like the Minnesota Realtors, have a project underway — with two goals. The groups hope to see more money allocated for down payment programs and for the process to become a lot cleaner, simpler and less complex for qualified buyers to get that financial help.

The big assumption that underlies this whole program is that buying and owning a house, if not exactly leading to a better lifestyle than renting, is at least a way for the family to accumulate a little net worth.

Even though there have been periods in the recent past, like 2001 through 2006, when buying a house left low-income families worse off than renting, generally the case for building wealth through homeownership holds up well.

That's even after accounting for all the things aspiring homeowners won't see in real estate ads, like the never-ending maintenance headaches or years of not-exactly-fun tasks like snow removal.

The MHC, Gugin said, first decided it needed to size up the unmet need in the state before it went about trying to come up with proposed fixes. With its partner, the Minnesota Realtors, the center was behind a research study prepared by the California-based Rosen Consulting Group.

That still leaves nearly 250,000 households that could afford the payments, yet only a fraction of those can come up with the full down payment on their own.

About half of the households that need help would require no more than $10,500 to get to a closing.

Minnesota is known for having a particularly big homeownership gap between white families and others, so we know this lack of down payment money must be part of the story.

The community development group at the Federal Reserve Bank of Minneapolis touched on Minnesota's big homeownership gap in an article earlier this year.

The federal government has been promoting and supporting house ownership for a long time now, with measures like making mortgage interest tax-deductible. The homeownership rate for everybody moved up, too, with the rate for Black Americans jumping from 23% just prior to World War II to more than 40 % by 1970.

The white homeownership rate in Minnesota increased from 55% in 1940 to 77% in 2019, the Fed's authors noted. Yet the homeownership rate for Minnesota households of color and Native Americans, together about 15% of Minnesota households, actually slipped a couple of percentage points since 1940.

A lack of family wealth seems to explain a big part of what's happened here. In Minnesota, the median net worth of white households is $211,000, the authors of that Fed article noted, compared to median net worth of exactly zero for Black households.

That leaves down payment assistance programs as one option. This can take the form of a grant or a loan, including a state of Minnesota zero-percent loan.

But when faced with navigating the process to see if a prospective buyer qualifies for a down payment assistance program, "it's hard to advise the customer on what to do next," said Bloomington mortgage banker Bill Schwietz.

Some programs are limited by geography, so you have to direct a prospective buyer to look only in certain municipalities. And even before asking your client to check eligibility, you first have to find out if the local program has any money left.

People who need to rely on a third party for the down payment are already at a disadvantage in a tight housing market, too, said Schwietz, of Summit Mortgage Corp.

Sellers face an easy choice when trying to decide whether to accept the all-cash bid or a competing bid from a prospective buyer financed with both a mortgage and a separate down payment program loan.

Gugin from the MHC said the goal is to end up with a far more uniform and simple system among the various providers of this assistance in the state, from establishing eligibility to formally applying for a loan or grant.

It'll take years.

And a more effective way to disburse the money should make these programs a more attractive option for additional funding.