A Borrower’s Journey to Homeownership Using a Down Payment Assistance Program
Gen Z and younger millennials are up against more roadblocks, namely staggering student debt and rising home prices and misperceptions about down payments, than their predecessors.
Despite the obstacles, the younger generation wants to own homes, which puts extra pressure on lenders to make sure they understand their options.
Down payment assistance programs are particularly well-suited to young first-time homebuyers when they include options to help make saving easier, such as dollar matching, automated saving and financial counseling.
Gen Z: A generation determined to be homeowners
Based on the results of a recent Bank of America report, lenders would be wise to focus on America’s youngest adult generation—ages 25 and under.
The study showed that 59% of Gen Z respondents said they want to own a home within the next five years, and 33% said they want to buy a home but will wait at least six years to do so.
Meet Taylor Dubord, a 25-year-old recent first-time homebuyer from Escanaba, Michigan. Like many her age, Taylor had a taste of living on her own while attending college. Then after moving home with her parents and saving some money, she started wondering whether homeownership was within her reach.
“I was working two part-time jobs and was careful about budgeting and saving,” she recalls. “But I really didn’t have any idea how much I needed to save or about the other expenses that go into it, like private mortgage insurance (PMI) and closing costs.”
Taylor admits she had some advantages: “My parents always talked to me about owning a home and put me on the right path early on,” she said. “I also got a job at a credit union and started talking to my coworkers about what I needed to do to buy a house. I had no idea you could put as little as 3% down.”
Taylor was in good company with that assumption—68% of renters said saving for a down payment was keeping them from homeownership, according to an Urban Institute report. Once she began to realize saving enough was possible, a loan officer and coworker at the credit union helped her take the next steps: “He told me about Freddie Mac’s MatchUpSM program and said, ‘let’s get you started on it and get you a home.’”
How automated saving and counseling can help shape lifelong habits
Helping first-time homebuyers navigate the myriad down payment assistance programs requires considering not only their specific qualifications, but whether certain programs teach young borrowers behaviors and practices to keep them on solid financial footing long past the closing.
Examples of these skill-building components include automated savings and financial education and counseling. Some of these programs help qualified borrowers prepare for homeownership by providing access to HUD-certified homebuyer counseling and establishing an automated online savings plan that, with a steady pattern of contributions, can be rewarded with a savings match—in some instances up to $2,500. The savings match is provided by the lender to the borrower when they bring their funds.
Automated savings, when paired with dollar matching, appeals to Gen Z borrowers. The popularity of fintech apps like Acorns, Digit and EarnUp proves this is a generation that believes in using tools to simplify and inspire how they save. Taylor credits the automated savings feature of the MatchUpSM program for helping her reach her goal faster: “The fact that the savings came right out of my paycheck and was ‘out of sight, out of mind’ was really helpful.”
Although Taylor had a head start on financial education through her parents and her job, she feels the counseling she went through with GreenPath Financial Wellness as part of the program boosted her confidence in her ability to manage and sustain homeownership.
“Even after I bought my house, the expenses that go along with all the home projects ahead of me seemed a little overwhelming,” she said. “But I know now I can save and keep to my budget.”
What lenders should learn from Taylor’s story
Taylor’s story accurately reflects what Gen Z homebuyer research has shown. A 2019 Freddie Mac survey of 1,531 members of Generation Z found:
- The overwhelming majority have positive views of homeownership and want to own someday.
- Since their parents have given them a financial education at home, they feel at least somewhat confident in their future financial well-being.
- Four in 10 are concerned they won’t earn enough to qualify for a mortgage.
- Most believe they’ll have to save for two to three years to meet down payment obligations.
Gen Z was hit hard by the mass layoffs and business closures during the COVID-19 pandemic, with one in four losing their jobs between February and May 2020, according to Bureau of Labor Statistics data. As the economy recovers, pointing potential young buyers toward down payment assistance programs is one way lenders can get Gen Z’s dreams of homeownership back on track.
It’s a dream Taylor hopes others can realize. “I want to see my friends and family get here, too. I want them to know there are people out there to help,” she said.