Create and Expand Downpayment Assistance

In order to make these limited funds go as far as possible many communities have decided to recycle their funds. This means that the funds that are used to help homebuyers are later repaid and then used to help a different homebuyer. In general, there is a trade-off between the benefit of recycling funds households and the administrative cost of handling the recycled funds. For very small amounts, recycling may not be cost-effective. But for more substantial amounts recycling is an efficient use of government funds. A good rule of thumb is that recycling amounts greater than $5,000 are usually cost effective.

In Minnesota there are several non-profit organizations that administer local loan programs for a small fee. This reduces the administrative burden for many small local governments and provides for a more efficient review and distribution of the limited funds.

In many cases, downpayment assistance loans are structured as no- or low-interest mortgages. To avoid increasing a households' monthly housing costs, down payment assistance loans often take the form of a "silent second mortgage," in which no payments are due until the home is sold or refinanced.

In neighborhoods that experience above average home appreciation the original assistance is not only recycled but also keeps pace with the increase in housing prices. A way to preserve the buying power of public funds against a rise in home prices is to include shared equity homeownership criteria. However, in the current economic recession a shared equity approach may not be appropriate given flat or falling housing prices and thus should be carefully evaluated.