Down payment assistance programs can facilitate the journey to homeownership.

• Programs that aid with down payments could be reconsidered as buyers face ongoing challenges with home affordability.
• Janet Stanzak, a certified financial planner and founder of Minnesota-based Financial Empowerment, advised that any funds needed for personal expenses in the next three to five years should not be invested in the market.

Earlier this year, when Will Hunnicutt searched for an apartment in Atlanta, he felt defeated due to high rental prices and rejected applications.

"It's challenging to meet the three-and-a-half times income-to-rent ratio when many places require $3,000," the 30-year-old social worker stated.

Hunnicutt discovered a $1,050-month two-bedroom apartment linked to Roots, an Atlanta-based real estate investment trust that helps renters of its properties accumulate wealth toward homeownership. He put down a $1,000 security deposit, which is invested in the REIT, and has earned an additional $200 in quarterly rebates for maintaining his unit and paying rent on time.

Having investment funds and passive income would be very helpful in achieving the goal of buying a house, as stated by Hunnicutt.

Roots, currently only available in Atlanta, plans to expand this fall as part of a broader goal to help consumers prepare financially for buying a home.

Programs that aid with down payments could be reconsidered as buyers face ongoing challenges with home affordability.

The dream of owning a home is becoming increasingly unattainable for many as home prices continue to rise. To purchase a typical U.S. home, aspiring homebuyers need to earn an annual income of $113,520, which is 35% higher than the typical household's annual earnings.

A lack of savings for a down payment is a significant barrier to homeownership for nearly 40% of Americans, according to a 2023 CNBC Your Money Survey conducted by SurveyMonkey. The report was based on the responses of more than 4,300 adults in the U.S. who were surveyed in late August.

'Thousands of down payment assistance programs'

Different forms of down payment assistance exist, sourced from various entities such as state agencies, cities, nonprofits, financial institutions, and mortgage lenders. Thus, it's necessary to search for what's available in your area.

Programs aimed at first-time homebuyers and those meeting specific income criteria are common. Additionally, there are initiatives specifically designed for "first-generation homebuyers."

Participants in many down payment assistance programs are required to complete a homebuyer education course and may also need to fulfill other conditions, such as using a specific lender or saving a certain amount for their home purchase.

The Chicago Housing Authority can provide significant assistance with up to $20,000.

The estimated Social Security COLA for 2025 may decrease as inflation decreases. Gen Zers are more likely to purchase fixer-upper homes, with some already regretting their decision. Economists argue that high inflation is not primarily the fault of either Biden or Trump.

Programs that aim to promote equality in home buying can help overcome the systemic barriers that prevent many Americans from owning a home, according to housing experts.

According to Nikitra Bailey, executive vice president of the National Fair Housing Alliance, Black Americans have been disproportionately affected by redlining, exclusionary zoning, and predatory lending.

First-generation home buyers require programs, said she, as they may not have the financial support of their families, who often rent rather than own homes.

"Bailey stated that although cities have implemented thousands of down payment assistance programs, they are not effectively reaching underserved consumers of color. He emphasized the importance of the term "first generation" as a race-neutral way to allocate resources to the consumers who will determine the future of the housing system."

How much you need for a down payment

Experts say that the daunting task of coming up with a down payment is often overestimated, as buyers commonly believe they need to put down 20% of the home purchase price.

The typical first-time homebuyer has an 8% down payment, but some loans require even less, with options for as little as 3.5% or 0% down.

If you put less than 20% down on a mortgage, you may need to pay private mortgage insurance (PMI), which can cost between 0.5% and 1.5% of the loan amount annually, according to The Mortgage Reports. You can usually request for mortgage insurance to be removed once you have 20% equity in your home.

'Those dollars should not be invested in the market'

Financial advisors suggest that first-time homebuyers should consider preserving their $10,000 penalty-free withdrawal limit from a 401(k) plan or individual retirement accounts for retirement purposes.

Experts generally advise renters to prioritize saving over investing for short-term objectives, even though Roots may aid them in accumulating wealth through investments.

High-yield savings accounts, certificate of deposits, or Treasury bills may be suitable for individuals with a five-year or shorter timeframe for purchasing.

"Janet Stanzak, a certified financial planner and founder of Minnesota-based Financial Empowerment, advised against investing in the market for any future needs that may arise in the next three to five years. She explained that markets typically cycle in this time frame and the worst-case scenario would be if one finds a desired home and their money is invested in the market, only for the market to take a downturn."