Posted by Down payment assistance success requires a strategic approach. These loan programs provide buyers with money for down payment and/or closing costs. While multiple varieties exist, one thing is for sure – there is a certain time that down payment assistance programs work best.
When Does Down Payment Assistance Work Best
Buyers using down payment assistance succeed more in a specific type of market. Markets known as a “buyers market” favor you when your utilizing down payment assistance. Buyer’s markets are exist when the supply of homes for sale is greater than the number of buyers in the market looking to buy.
A buyers market gives leverage to buyers and typically pushes sellers to be more open and negotiable. Why? Simply put, there are less buyers looking to buy so a seller does not have many to choose from. Think of it like selling your car. Imagine you’re selling your car and the market has just 1 buyer for your car. This would be a buyers market because the buyer knows you need them. Therefore, you are in an unfavorable negotiating position and may need to accept a lower offer from the 1 sole buyer. Very different if there were 20 buyers in the market after your car. In that case, you could sit around and wait to take the highest priced offer.
Why Buyer’s Markets Favor Down Payment Assistance
Buyers markets favor DPA buyers for 2 reasons.
Reason 1
Sellers when given the chance typically shy away from accepting offers from down payment assistance buyers. They are seen as more complex loan products with a greater chance of not closing on time or falling apart and not closing at all. When sellers have several offers to pick from, they typically lean toward a stronger appearing offer which might be a cash buyer or one with 20% down.
However, in a buyer’s market the seller may only receive one offer and if that’s a down payment assistance buyer the seller may be forced to accept it due to a lack of options.
Reason 2
Commonly, down payment assistance buyers need help covering both down payment and closing costs. Many down payment assistance programs do not provide enough money to cover both down payment and closing costs. Therefore, these buyers need the seller to help cover closing costs while the down payment assistance covers their down payment.
Again, in buyer’s markets sellers must be more willing to negotiate with buyers as a result of there being few buyers to choose from. As a result, a buyer stands a greater chance of a seller agreeing to paying some or all of their closing cost. However, in a seller’s market sellers are not forced to give concessions to buyers. This makes it difficult for down payment assistance buyers to get their closing costs covered.
In conclusion, any buyer using down payment assistance should jump on the chance to house hunt in a buyer’s market. These markets are rare. For example, in Maricopa County only 4 buyer’s markets have existed in the past 25 years (and we are in one right now).