Two tenants pose in front of their new home they rent from Roots, a program that helps renters invest in real estate.
Courtesy: Katie Curran
When Will Hunnicutt was looking for an apartment in Atlanta earlier this year, high rents and rejections left him feeling defeated.
“The three-and-a-half times income-to-rent ratio is hard to meet when they want $3,000 in many places,” said the 30-year-old social worker.
Then Hunnicutt found a $1,050-a-month two-bedroom apartment tied up Rootsan Atlanta-area real estate investment trust that works to help renters of properties in its portfolio build wealth towards home ownership. His $1,000 security deposit is invested in the REIT, and he’s earned another $200 in quarterly rebates so far for taking care of his unit and paying rent on time.
“The end goal is to buy a home, so having investment funds, that passive income, would be very helpful,” Hunnicutt said.
Will Hunnicutt with his dog Bailey in his Atlanta home he rents through Roots, a company that helps renters build wealth by investing in real estate.
Courtesy: Will Hunnicut
Roots is currently only available in Atlanta, but has plans to expand this fall. It’s just one approach to a larger goal: helping consumers prepare financially to buy a home.
As buyers continue to struggle with home affordability, experts say down payment assistance programs may be worth another look.
The dream of owning a home is becoming more and more out of reach for many as homes become more expensive. Aspiring homebuyers need to make $113,520 a year to buy a typical U.S. home, according to the national real estate website Redfin — 35% more than a typical household earns annually.
One hurdle to home ownership is having enough savings for a down payment. Nearly 40% of Americans who do not own a home point to one lack of savings for a down payment, according to the 2023 CNBC Your Money Survey conducted by SurveyMonkey. More than 4,300 US adults were surveyed in late August for the report.
“Thousands of down payment assistance programs”
Down payment assistance programs come in many forms and from different sources — including government agencies, cities, nonprofits, financial institutions and mortgage lenders. So you’ll have to search to see what’s available in your area.
Typically, assistance programs focus on first-time homebuyers and buyers who meet certain income qualifications. There are also programs that focus on “first generation home buyers.”
Many down payment assistance programs require participants to attend a homebuyer education class. Depending on the program, they may also have to meet other requirements, such as getting their mortgage through a certain lender or saving a set amount to contribute to their home purchase.
Help can be important. For example, Alternatives Federal Credit Union in Ithaca, New York, has programs offering $9,000 to $20,000. The Chicago Housing Authority may help with up to $20,000.
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These kinds of programs are one way to work toward home equity, as systemic barriers still block the path to homeownership for many Americans, housing experts say.
That’s especially true for Black Americans, who have largely seen the end of decades of redlining, foreclosures and predatory lending, according to Nikita Bailey, executive vice president of the National Fair Housing Alliance.
Programs aimed at first-generation homebuyers are vital, he said. While it’s common for family to help with a down payment, would-be buyers whose parents rent are less likely to be able to offer that help.
“We know there are thousands of down payment assistance programs that cities have adopted,” but their reach to “underserved consumers of color” is limited, Bailey said. “And that’s why ‘first generation’ is so important, because it’s a race-neutral way to target resources to the consumers on whom the future health of the housing system depends.”
How much do you need for a down payment?
Part of the reason coming with a down payment is so scary is that buyers often think they have to put down 20% of the home purchase price. They are wrong, experts say.
A National Association of Realtors survey based on transactions from July 2022 to June 2023 found the typical first-time home buyer has an 8% down payment.. And some loans require even less, as little as 3.5% or even 0% down.
Keep in mind that putting less than 20% down usually means you’ll have to pay private mortgage insurance, or PMI. PMI can cost anywhere from 0.5% to 1.5% of the loan amount per year depending on different factors, according The mortgage reports. Typically, you can ask for your mortgage insurance to be removed after you reach 20% equity.
“These dollars should not be invested in the market”
First-time homebuyers may qualify for penalty-free withdrawals of up to $10,000 from a 401(k) plan or traditional individual retirement or Roth accounts. But financial advisors recommend saving those funds for retirement when possible.
While Roots can help its tenants invest to build wealth, experts emphasize saving rather than investing for short-term goals.
Low-risk options, including high-yield savings accounts, certificate of deposits or T-bills may be ideal for people with a purchase horizon of up to five years.
“Anything you need dollars for in the next three to five years, those dollars should not be invested in the market,” said Janet Stanzak, a certified financial planner and founder of Minnesota-based Financial Empowerment. “Markets typically fluctuate in three- to five-year cycles, and the worst-case scenario would be that you find a home that you want to move on and your money is in the market and the market takes a downturn.”
