Down payment assistance lends hand to homebuyers

Deidre Barrett thought she’d never buy another home in Asheville. Though she had bought and sold home in West Asheville 20 years ago, the 51-year-old elementary school teacher says that the city’s cost of living today — among the highest in the state — made the notion of qualifying for a mortgage seem more like a dream than a real possibility.

But in the summer of 2021, her landlord decided to put Barrett’s Leicester home on the market, and the teacher saw her chance. “I really had no idea how on earth I could make it work, but I started jumping through just about every hoop I could think of,” she says.

Those hoops included completing an online homebuying class through OnTrack WNC, an Asheville-based nonprofit. It was there that Barrett first heard about down payment assistance through another Asheville organization, Mountain Housing Opportunities.

After contacting MHO and completing an extensive vetting process over four months, Barrett qualified for roughly $25,000 in down payment assistance, which allowed her to close on her home in late January. “At the end of the day, I was sitting in somebody’s office and was signing the papers, and they said the house was mine,” she recalls.

Down payments are a crucial part of the equation that determines how much of a loan prospective homebuyers can qualify for — and by extension, what houses they can afford. As residents cope with Asheville’s red-hot housing market and rising mortgage rates, some low- and moderate-income families are turning to local and national down payment assistance programs to overcome one of homebuying’s biggest barriers.

Numbers game

Down payments represent the portion of a home’s purchase price that buyers pay upfront and aren’t part of loans from mortgage lenders, says Mike Vance, vice president and director of operations at Mountain Housing Opportunities. The size of a down payment can range from as little as 0% of a house’s cost to as much as 20% or more, depending on the type of loan and whether the home will be used as a primary residence. 

That money often comes from savings, the sale of an existing property or family support, Vance says. But many families, particularly first-time homebuyers, struggle to accumulate the amount needed. 

Compounding matters is Asheville’s highly competitive housing market, which saw home prices jump 21.8% year-over-year in May to a median price of about $490,000, according to Redfin, a nationwide real estate brokerage. Soaring home prices and cash purchases are pushing down payment amounts ever higher, Vance says. 

“Ten years ago, people were getting mortgages for $100,000 and buying a house. A lot of people still can’t afford much more than [a] $150,000 mortgage, but the gap between a $150,000 mortgage and a $300,000 house is now $150,000,” he explains. “Down payments reduce the size of that loan, and therefore, the amount of the monthly payments.”

Sharing the cost

MHO offers a down payment assistance program in Buncombe, Haywood, Henderson and Madison counties. Funding comes from a variety of sources, including the U.S. Department of Housing and Urban Development, federal Community Development Block Grants, Buncombe County and more.

Applicants must earn 80% of the area median income or less (in the Asheville metro area, $45,000 for an individual or $64,250 for a family of four). MHO caps the amount of help for qualified applicants at $40,000 for those within Asheville city limits and $30,000 elsewhere. Homebuyers must secure a traditional fixed-rate mortgage, and funds can go toward either closing costs or reducing the home’s purchase price. Properties bought through the program must pass health and safety inspections.

MHO’s assistance comes through a “shared appreciation loan,” payment of which is deferred without interest until the borrower resells the home or no longer occupies it as a primary residence. When that happens, the homeowner repays the original loan plus interest equal to the house’s rate of appreciation. 

“We’re essentially investing in that home. And we’re trying to keep our money in equal value with the rising price of houses,” Vance explains. “If we put $30,000 into a home, we’re going to [get] $30,000 as well as the percentage of the purchase price of the house.”

Since 2009, Vance says, the program has helped roughly 350 homebuyers. But that’s becoming harder to do with rising housing costs, especially within the Asheville’s limits. From 2019-21, 14 of 67 assisted buyers were in the city of Asheville; so far in 2022, he says, no city buyers have used the program.

“We’re finding it very difficult to help folks in the city. The price points are just way beyond our reach,” he says. “So our impact in the city has been falling year after year. We haven’t been able to raise the loan amounts to an amount that really works for the income population that we serve.”

Pay to stay

Local government employers are also trying their hand at offering down payment support to help recruit and retain staff, albeit with mixed success. In March, Asheville City Schools announced a new partnership with Landed, a San Francisco-based company that offers shared appreciation loans to people in medical, education and civil service positions. 

“In expensive cities like Asheville, prices of homes are making it difficult for essential professionals, such as educators, to become long-term residents in the communities that depend on them,” says Claire Goebel, who represents Landed’s Southeast office in Rocky Mount. “And if we want stronger schools and healthier communities, we need to be able to support those who make it possible.”

Loans of up to $120,000 are available to help homebuyers reach a 20% down payment, a level Goebel says allows them to avoid paying for expensive private mortgage insurance. The program is available to ACS employees who work more than 20 hours a week for more than 12 weeks a year.

Landed’s loans operate similarly to those offered by MHO in that loan payments are not due until the home is sold or no longer occupied by the borrower. But compared with the MHO program, Landed requires repayment within 30 years and claims a greater portion of a home’s appreciation.

Goebel says that around 50 ACS employees have expressed interest in the program or taken initial steps to apply for loans. “It’s typical for it to take a year or so in a new partnership to really start to see people move through the pipeline. But we’re excited about the interest and about people who are already starting to kind of move into their next steps,” she says.

In a press release announcing the program, former ACS Superintendent Gene Freeman called Landed’s work “a valuable solution to support our staff and make homeownership more accessible.” But when pressed on details of the partnership, ACS Director of Recruitment and Induction Kimberly Dechant said that Landed’s service was “not officially endorsed by, or a program of, Asheville City Schools.” 

“Our goal is to keep staff informed about the myriad of opportunities available to them,” she wrote in a June 9 email to Xpress.

Buying in Buncombe? 

Buncombe County also offers an Employee Housing Assistance Program, which lends funds to full- or part-time county employees who have been employed for at least a year, earn at or below 80% AMI and currently do not own their own home. The county offers loans of up to $10,000 at 2% interest, repayable through payroll deduction over five years, that can be used for down payment assistance, home rehabilitation or new construction. 

Since its launch in 2013, says county spokesperson Lillian Govus, 18 employees have accessed the program, 14 of whom have completed repayment; only three of those have used the money for down payments. The program has distributed nearly $135,000 in assistance to date.

“As we look for ways to remain competitive in the job market, programs like this provide a huge resource to employees that isn’t always available with other employers, so it’s another way for us to show that Buncombe County is a great place to work,” says Govus. 

The county’s tightening real estate market may be reducing the program’s impact, as only two employees have used it since 2019. Govus notes that the county is currently reevaluating the program to determine if updates are needed to adapt to Asheville’s current housing landscape.

Meanwhile, the city of Asheville launched its own down payment assistance program in 2019, dedicating $1 million from its affordable housing bond proceeds and securing another $400,000 through a public-private partnership with the Federal Home Loan Bank. Of those funds, $400,000 were dedicated to full-time city employees, with the remainder available to any low- or moderate-income residents.

But the program fell apart before it actually helped anyone. A request for proposals for a loan officer that could meet the city’s proposed terms for managing the work was never met, says city spokesperson Kim Miller. Miller says that Asheville City Council will determine how best to redirect the funds to other affordable housing programs but did not say when a decision was expected.