NerdWallet's Smart Money Podcast - Get Out of a Timeshare and Find Down Payment Help to Buy a Home

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Starting point is 00:01:41 soon as you're on the plane. Book your sunny getaway today at flyporter.com and actually enjoy economy. Getting into a timeshare takes an afternoon, but getting out of one can take years and also thousands of dollars. Today we answer a question about how to get out of a time share when it's no longer financially beneficial. Welcome to NerdWallet Smart Money Podcast, where you send us your money questions, and we answer them with the help of our genius nerds. I'm Elizabeth Ayola. In case you're wondering where Sean is, he's going to join us later in the show.

Starting point is 00:02:17 But today we're going to be discussing a question about timeshares. Here it goes. How do I get rid of a timeshare that my parents own but no longer use? They pay yearly fees and have access to a property every two years, but are not able to make use of it due to age and also travel. I am not interested in the property, which is in Orlando, Florida. We live on the West Coast. Thank you.

Starting point is 00:02:43 Inca, longtime listener. Well, thank you, first of all, Inca, for being a longtime listener. We value your listenership. Is that a word it is? All right. So we have fellow nerd Craig Joseph here to help answer Inca's question. Welcome to Smart Money, Craig. Hey, Elizabeth, thanks for having me.

Starting point is 00:02:59 Hopefully we can help Ink out. I think we can. All right. So Craig, when we got this question, I was like, you know what, Craig is going to be the perfect person to answer it. And why is that? Because you've written quite a bit on timeshares already. So let's start with the basics. What is a timeshare, Craig? So time share is a type of vacation property with a leasing or ownership model where you pay an upfront purchase price to access a property or a collection of properties along with other owners who can also use the property for a set amount of time each year. and that can be up to a few weeks per year or another duration depending on what the contractual obligation is. The timeshare industry sometimes now uses the term vacation ownership or vacation club instead of timeshare, where you can access more than one property under your contract, but the concept is much the same, and that industry is massive. According to a recent report from the American Resort Development Association, the timeshare industry accounted for $10.7 billion in new sales alone in 2025.

Starting point is 00:04:00 And for comparison, that's in the ballpark of Chipotle sales worldwide last year. So evidently the public has the same appetite for timeshairs as they do for burritos. Ooh, I should hope not. Well, that's just my bias. But let's continue. I have a little story for you. I went to Jamaica over the summer with my boyfriend. And that was my first experience with timeshare salespeople, if that is what you call them.

Starting point is 00:04:22 And when I say they were aggressive, I mean they were aggressive. Now, I thought I was just going there to get a free massage because they told us, If we come to the presentation, we get a free massage, but we were there for hours, and they were hounding us to pay for this timeshare. Now, I know for you, you have gotten things like discounted trips from timeshare presentations. I only got offered a massage. So can you tell me more about some of these incentives that these companies might offer people? Those tactics are one of the reasons why I don't care about taking advantage of this to the best of my ability. I think the sales taxes are high pressure to say the least. So sitting through a time share, presentation can get you a discounted hotel room and a slug of points for a future hotel stay.

Starting point is 00:05:04 And that's one of my favorite travel hacks. So the premise is simple. The property dangles a cheap stay in a desirable place like Las Vegas or New York or Cancun, in addition to other perks such as massages, in exchange for you seeing through a high pressure sales presentation that can take up the two hours. And it's during your stay, so you're actually taking time out of your vacation to sit through this. And their goal is to get you to sign a contract for a timeshare.

Starting point is 00:05:28 Simple. So unless you want a time share, you should only do this if you're comfortable with saying no, and you're going to say no a lot. Man, Craig, when I tell you, I was irritated because I felt like it was a challenge to the I call myself a recovering people pleaser. So no is still something that I work on saying. And I thought like, yeah, sure, I can say no. By the end of that presentation, I wanted to say yes so that they would leave me alone. It was gruesome. And do you know the worst part about it, Craig? We only got a 30-minute massage. And we only got a 30-minute massage. And we, We were there for two hours. Had I known, I would have said no to begin with. Like, what? That felt like a scam, Craig.

Starting point is 00:06:05 I didn't like that. That math doesn't math. It wasn't math in at all, okay? Elizabeth, so I've done around a dozen of these presentations, and I've accumulated hundreds of thousands of hotel points with various brands over the years. In addition to receiving other perks, like I said, spa treatments, even Disney Park tickets one time when I was in Orlando. And this strategy has helped me save thousands of dollars.

Starting point is 00:06:27 Most recently on a trip to Las Vegas, I was out there for a concert at the Sphere, but I got a three-night stay and a pile of Hilton points for $150 out of pocket. I got all of that for taking two hours out of my day to go and sit through one of these presentations. And while I don't mind sitting through one of them, it's certainly not for everyone, and it sounds like it's not for you. My girlfriend sat through the last one I did, and the tactics made her pretty uncomfortable. And that's all because the sales professionals tug at your emotions with aspirational fantasies. while making you feel like family, right?

Starting point is 00:06:58 They make you feel super comfortable. But they're super incentivized by commission. So they want you to buy a timeshare. They want you to have lofty goals and aspirations of travel. And at the end of it, sign a contract that can last for the rest of your life. So they're using that hour or two to sell you on a lifetime commitment. And I would argue for most people that that's probably not worth it. No, a lifetime is a long time.

Starting point is 00:07:21 In fact, it's my whole life, literally. So I am not trying to be, you know, tie into some timeshare or tied to a time share for all this. And let me tell you, me and my boyfriend must have had a moment of intimacy after that. Because after the presentation, he goes, yeah, I used to sit through these things all the time with my parents. Why didn't you tell me that before you drag me into this presentation? And then he also tells me that his parents have a timeshare property that they're trying to get rid of. So this conversation will be helpful for him as well. Boy, it sounds like you need to have a conversation with him about forthcomingness.

Starting point is 00:07:52 I know, right? He's like, I'm so sorry for making you sit through that. Yeah. Anyways. Those presentations are actually pretty valuable for the industry. A few years ago, I talked to the CEO of the largest timeshare industry association. And he actually said that about 20% of people sit through those presentations and then decide to sign a contract afterwards. So two out of ten. It seems pretty high, right? And that purchase, of course, comes with a huge financial commitment. So in 2025, the average purchase transaction for a timeshare was around $25,000, with an average annual interest. rate for buyers at around 15%. It's crazy. So people are financing future vacations. And that's before accounting for monthly and annual fees, which we'll get to in a little bit. But just for comparison, right now, the average 30-year loan for a house that you own and that you can sell and build memories in, day in and day out, is around 6 to 7%. So you're paying over double the interest for the potential to possibly use it a couple of weeks a year. Craig, this is insane. And it sounds like people need to get better at saying no. And also, I wanted to clarify about this 15%. So where are they paying the

Starting point is 00:09:01 interest? Are they charging it to a credit card or tell me how the interest works? So just like any type of high dollar amount, you can get a loan for it. But the riskier the loan, the higher the interest rate. So at 15%, you can kind of tell where the lender thinks the risk is. There's not a lot of value there. And a lot of people default on these or try to get rid of them. So the higher the interest rate, the higher the risk. So the lenders see time shares as a higher risk vessel for people to take out loans. So you need to be really careful if you're going to borrow money for vacations. Let's get into the terms and conditions here, Craig. Now, there are different types of timeshares out there, and the terms and conditions can vary widely,

Starting point is 00:09:42 depending on the timeshare. What are some of the legal ownership structures of timeshares out there? So there are a few types of timeshare contracts, but the two I've seen most frequently are share deed. and right to use lease. So a shared deed is where you own a fractional stake of a property. So think that there are 50 owners for a condo and you own 150th of the property. So 50 people literally sign contracts for ownership stake into a condo. And that represents the majority of timeshare contracts. The right to use lease gives you the right to use a property for a set number of years after which the contract expires and you owe nothing. So you pay the upfront cost. Sometimes you take a a loan out for it. You pay annual or monthly maintenance fees and then you own nothing at the end of it.

Starting point is 00:10:30 Sounds like a bad deal. It's not a good deal for most people. And I need to preface this that's coming across a super negative. That's my opinion. But these work for some people. The problem is it's a very select group of people. That shared deed type that I just mentioned leaves you with nothing. And it might actually leave you wishing you didn't have an ownership stake because it's not worth much when you go to try to sell it if you have the shared deed type. There's a whole industry that helps people get rid of these timeshares and sometimes it's for pennies on the dollar relative to what you contributed to begin with. I imagine that for most Americans getting maybe a second or third vacation home is out of reach. So do you think that these time shares, especially the

Starting point is 00:11:10 shared deed structure, can make people feel like they have access to a vacation home? Well, that's exactly it. And that's who these timeshares tend to attract. It's people who can't afford a second home or they can't afford it. They just don't want the ongoing maintenance and other mental bandwidth and financial bandwidth that goes along with having a secondary home. So the timeshare industry sells you on these aspirational travel goals. Like you can't afford the condo on the beach, but if you pay up front, you can afford a couple weeks at the beach every year for the rest of your life, oftentimes in the same place. So if you like variety, this may not be for you, although there's some. Again, with the vacation ownership,

Starting point is 00:11:50 It's a little bit different than the traditional timeshare model. So now Hyatt and Hilton and the other big players in the timeshare space are selling you on the ability to stay at different properties throughout the world. But it's still not for me. I still think people can do better by just having flexibility and booking travel where they want to go, when they want to go. I will say that's what those people in Jamaica were trying to sell us, that we have access to properties all over the world. And when we kept saying no, it was hard for me to say no because I didn't have a real reason because they're like, well, This doesn't make sense why you're saying no, because you have access to property. So if you're bored of one place, you can go to another place, extremely aggressive.

Starting point is 00:12:27 But I was just like, I just want to have my own choice. I don't want to have to, even if you're giving me an option of, I don't know, 300 properties, I don't want to be bound to these 300 properties. Hey, can I ask you? So during that presentation, did they try to sell you on cash up front or were you buying points in order to redeem the points for future vacations? Cash. So that's an interesting model.

Starting point is 00:12:51 That's the way it typically works. I've been to some of these presentations recently where they have you take the cash and then you're buying points and then you use the points to redeem them. So you're one step removed from your money. And when you look at the chart of how this works, it gives me a headache. Like I do this for a living and it takes me notes and spreadsheets in order to figure out how exactly it all works. And for the average person, like again, you're sitting through an hour or two percent. to make a lifetime decision. So be very, very careful. Agreed. Let's look at scheduling models, Craig. Inca's parents seem to have a property they can use every two years, but the cadence can be different, right, depending on the plan? The frequency and duration that you can schedule a vacation at a time share depends on your contract.

Starting point is 00:13:37 It could be a week-long stay once a year or a multiple-week increments over another set period of time. So in Inka's case, it sounds like, in Inca's parents' case, it sounds like it's every couple of years. One of the problems is that you're vying for space relative to all the other timeshare owners. So imagine you're in that fractional share model. There are 50 other contracted people that are trying to use the same space, and it might be at the same time. So sometimes when you want to book a stay, the timeshare may not be available. And another big limitation is black outdates for peak travel periods, to say around spring break or the winter holidays. Oftentimes, even though you do contractually have a stake of ownership with a property, they charge you more to book around those high demand periods.

Starting point is 00:14:18 A bulk of their earnings come from fees in terms of these timeshares. What are some of the fees associated with time shares? Can you give a range also of how much these fees might run? So we just mentioned some fees. so you can actually be charged booking fees for high demand periods for something that you contractually own. But in addition to that, and in addition to the buy-in and interest costs if you finance, timeshares levy maintenance fees that are usually charged monthly. So you can imagine that those monthly fees add up.

Starting point is 00:14:46 And on average in the past year, that was around $15 to $1,600 per timeshare contract. And that's $15 or $1,600 per year. So you can think of it like an HOA fee or a homeowners association fee for, residential community or apartment complex, you're paying this fee for upkeep of the buildings and lawn maintenance and all the other amenities that go into owning a property that you don't actually personally have to maintain. Those fees also cover property insurance and inflation. In general, there's no cap on the amount of the fees that can increase every year. So one year, if insurance goes up or inflation goes up, you might be on the hook for 10% more than you were the year before.

Starting point is 00:15:26 and these fees really don't decline year over year because it's one of the ways that the companies make money. And, you know, one of the other things is that that $15 to $1,600 average is just that it's an average. So many people are paying more and sometimes a lot more. I did a quick look on the timeshare owner's subreddit and found someone paying $7,500 annually in maintenance fees on top of $2,000 per month for their principal and interest payment. So think about that. That's $24,000 per year. for their principal and interest payments. And that's on top of the $7,500 annually that they pay in

Starting point is 00:16:02 maintenance fees just for the right to potentially book a property that they contractually own for a few weeks a year. It's crazy to me. And then I'm also thinking there might be years, while I would love to go on a vacation every single year, there may be years, maybe I want to cut back on expenses, and I don't want to go on a vacation. But if I'm part of a time share and I choose not to, then I'm essentially paying fees for something that I'm not using. That's absolutely right. And as somebody that travels for a living, I'm literally a travel writer, my whole thing, if you want to save money and travel for cheap, is use hotel points, use credit card rewards, use things that don't tie you into a contract that last forever. And they also provide a whole lot more flexibility. All right. So we've talked about what timeshares are. We've talked about fees associated. Let's get to the meat of Inca's question. How are we getting out of the timeshare? Now, when I did my own research on timeshare, I was mortified at how difficult it can be to get out of them. Craig, why is it so hard to say, hey, I don't want this time share anymore and I want to get rid of it and save our money. So the big players in the timeshare space know how to write contracts and they know how to write ironclad contracts. So I'll preface this by saying that I know, I know, the timeshare model works for some people. I'm not one of them, but it seems to work for some people.

Starting point is 00:17:18 But generally, the industry exists by selling you on a dream and trapping you with the exhausting fees and restrictions in the legally binding contract that you sign. And in my opinion, timeshares are the ultimate expense marketed as an asset. Assets make you money. Time shares generally don't make you money. They don't really appreciate in value because they're so illiquid. And since the contracts are legally binding and can last for a lifetime, they're hard to since most people don't want those kinds of restrictions for the rest of their lives. And if they did, they would just go and buy a timeshare outright themselves. They wouldn't be looking to purchase yours.

Starting point is 00:17:52 Wow. I know this is not hopeless in Inca, we want to help you. So what are some steps that Inca's parents can take to begin to rid themselves of the timeshare? While I was reading upon options, I came across timeshare exits. And I must say they do look a little bit like shady business, Craig. Can you explain how they work? Oh, shady business is right. So there are a few ways that you can get out of a timeshare and going through a third party is not one that I would recommend.

Starting point is 00:18:19 A timeshare exit company is a third party business that charges an upfront fee to help owners cancel their timeshare contracts. And I'm using help in air quotes for the listener. They often charge thousands of dollars or more. And the industry is generally widely known for making false guarantees that can even leave you with the timeshare after you pay their fee. So you're still on the hook for the contract after you pay $1,000 to try to get out of the contract. And these companies are so shady and unscrupulous that the Federal Trade Commission actually has guidance on avoiding them in order to not have to deal with the issues that have come up with those third parties. So instead of dealing with the third party, my personal recommendation and the recommendation of the Federal Trade Commission is that you simply contact the timeshare that you're under contract with and discuss exit options. Okay, this is getting bleak, but I know there's a light at the end of the tunnel, Craig.

Starting point is 00:19:16 As you mentioned, if someone tried to sell me a timeshare, I don't want it. So I imagine, as you said, it's hard to resell them. Can you sell it back to the company that you bought it from? What are there other options? Oftentimes you can, and that's usually your best best. So there is something called an exit fee associated with a lot of these contracts where the timeshare company will buy the property back from you or buy the contract obligations back from you for a fee. These timeshare stakes are so hard to find buyers for that often people give them away for free on eBay just to get out from under them. You know, another option is that you could rent the timeshare out, but that can also be difficult.

Starting point is 00:19:51 So in Inka's case, her parents own a timeshare in Orlando. there's a glut of housing and other time shares available in Orlando. So it's going to be very, very difficult to get your money back and recoup your costs if you do try to rent it out. Another option is that you could simply stop paying your dues, but I 100% would not recommend this to anyone. You're contractually obligated to pay these fees, but that choice could be catastrophic to your credit score. If the timeshare developer or whoever your lender is decides to foreclose on you for a lack of payment. So if you go to one of these timeshare presentations like you went to in Jamaica or like I go to regularly, if you sign a contract, most states now mandate a cool down period. And legally, that's called a rescission period. And it typically lasts for a three to 15 day period after you sign a contract, depending on the country or state that you sign in. And that allows you to cancel the contract and walk away like you had never signed it. It's sort of like a return policy from a car dealership when you buy a new car in case something happens with it in the week after. after you drive off the lot. And this exists to protect buyers who may have purchased a timeshare

Starting point is 00:21:00 under duress caused by aggressive sales tactics. So again, these sales tactics are so unscrupulous oftentimes that there are now regulations in place to let people walk away from contracts in the weeks after they sign them. All right, Craig, I know that your article mostly talks about how to get the perks without committing, but let's talk about the pros because we've gone over a lot of cons. Elizabeth, you experienced it. Those salespeople use pretty lofty and dreamy language, don't they? They do, they do. There's a reason for that. They want you to dissociate into a dream and sign a contract while your head's in the clouds. So let me phrase it like this. At the end of the day, a timeshare could be for you if you would rather have the potential, but absolutely not a

Starting point is 00:21:47 guarantee of saving a few dollars on a vacation, but be locked into visit in the same place or a limited number of places every year and maybe at times that you don't want to visit because the timeshare you own is already occupied or falls within blackout dates. So if you have travel flexibility and you want to return to the same place every year, some people want that. I prefer variety. If I want to go back to the same place, I'll just book it again in a few years and not have a contract. But some people want to know exactly what they're getting year in and year out and return to the same place. And that's fine. A timeshare might be for you. It works for some people. Again, I high, value flexibility, and timeshares are the opposite of flexible. So they lock you into payments

Starting point is 00:22:28 that increase every year regardless of whether you use it, and that's just really not for me. I do know a few people who are very rigid in that way and like to go to the same place every year and do the same thing. So I guess you're right. It could appeal to people like that, but I mean, there are just so many other ways to travel. Yeah, exactly. And that's my biggest thing, is you don't need a timeshare to travel. If you have it, maybe it gets you out of the house and you wouldn't have booked a vacation otherwise. Maybe that's for you if you want to go to the same place and you wouldn't travel otherwise.

Starting point is 00:22:59 But you don't need it. You can travel without all the restrictions and with a lot more flexibility. When you buy a timeshare, you're contractually on the hook for those maintenance fees and the upfront cost. So if you don't vacation one year, you're out 100% of that amount you paid

Starting point is 00:23:14 with nothing to show for it. And beyond that, if you take out a loan for the initial buy-in, you're effectively financing future vacation. And it's no different than putting a vacation on a credit card without paying it off, which I would never recommend anybody do. Well, correct, for people who do opt to buy into a timeshare, so maybe they've listened to this and they've said, you know what, it is for me and I still want to buy into a timeshare.

Starting point is 00:23:36 What are some things that they can do to avoid being in a position where they're struggling with rising fees and underuse in the future? So rising costs are a fact of life for timeshare owners. But underuse is something that you can control by planning ahead. You can block off time on your calendar every year in advance to be sure that you use the timeshare that you're paying for. All right. Well, Craig Joseph, you have laid out the arguments for and also against. And I still say, I'm against timeshaers. Definitely not for me. Now, I hope that was helpful for you, Inka. Please let us know, write us and tell us what you thought.

Starting point is 00:24:08 And Craig, thank you so much. Absolutely. It was a pleasure, Elizabeth. Before we get to this week's money news, we want to tell you how you can win a $250 Amazon gift card. Yes, $250. I wish I could participate. But anyway, all you have to do is take our listener's survey at nerdwollet.com slash pod survey. Your answers are going to help us improve the show, and the survey is shorter than last years. And not one, but two lucky winners will get a $250 Amazon gift card for participating.

Starting point is 00:24:40 One more time, that's nerdwollet.com slash pod survey or check the link in the show notes. Stay with us for a look at what kind of help is available if you want to buy a house but don't think you can afford it. That's next. New from Nespresso. Blend wellness into your coffee routine with a coffee plus range infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function and coffee plus B6 to keep your day moving. Or go with the flow and choose ginseng delight.

Starting point is 00:25:14 Our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nessing. Espresso.com. Hey, listener. Elizabeth and I want to take a quick second to talk about our listener survey. Because nothing says we value your financial well-being, like interrupting the show to ask you to fill out a form.

Starting point is 00:25:35 Two things make this one worth your 90 seconds. First, it's short. Second, your answers actually go somewhere. You're basically an unpaid member of our editorial team. And, of course, there's a prize. Two people will each win a $250 Amazon gift card. And might I add, this is the biggest giveaway we've ever done for this thing? Go to nerdwallet.com slash pod survey or check out the link in the show notes and fill this out by September 30th for your shop.

Starting point is 00:26:00 Official rules are there too. That's nerd wallet.com slash pod survey. Good luck. Let's get to our weekly money news roundup where we break down the latest in the world of finance so that you can be smarter with your money. We've just been talking about timeshares and how to get rid of them. Let's pivot to a, shall we say, slightly more stable part of the housing market, along with some ways that could help those who think they don't. have enough money to buy a house. Our news colleague Anna Hilhouski is back. Hey Anna. Hey, Sean Elizabeth. Yeah, we know buying a home takes a lot of cash up front. There's a down payment, there's closing costs, and ideally some savings left over after you get the keys. But right now, buyers aren't getting much help from the market. Mortgage rates are back around a whopping 7%. And just last

Starting point is 00:26:44 week, the Fed raised its benchmark rate. So instead of asking when housing is finally going to get cheaper, Today we're asking what help is available if you want to buy anyway. Mortgage writers Abby Doyle and Kate Wood are here to break down how down payment and closing cost assistance works and how to tell whether it's actually a good deal. Welcome back. Oh, thanks, Anna. Thanks. Abby, let's get right to it. Can you really get free money to buy a house?

Starting point is 00:27:09 Sometimes, but I'd put a big asterisk after that word free. The important thing to know is that this money exists and you might have more options than you think that you do. Down payment resource, which is an online database that tracks these programs, counted more than 2,700 assistance programs nationwide in the second quarter. And most of these programs are run by state and local governments, but you can find help in a lot of places. Nonprofits and individual lenders have programs that they manage to. So how do assistance programs work in practice once that you actually find one? Do you take it to your mortgage lender? Not necessarily.

Starting point is 00:27:44 And that's where there's a big tradeoff here, is that your lender choices when you're using home. buying assistance might be more limited. State or local governments might say, like, sure, we'll help with your darn payment, but here's the list of lenders that you can choose from, and you need to get a specific type of mortgage to use the assistance. So that could still leave you with plenty of options, say like a list of 50 or so, but it narrows the playing field quite a bit. And another example, Kate and I know this, we review mortgage lenders a lot here at NerdWallet, and a bank, credit union, other mortgage lender might offer their own grant. down payment assistance program for buyers. But that money comes with an obvious condition, which is that you

Starting point is 00:28:25 need to get your mortgage from them, too. Right. So what does the assistance actually look like? Is someone just handing you a check? Only if by someone you mean like a rich relative. But with organizations offering down payment assistance, how you receive that assistance is going to vary. So sometimes it is a grant, which basically is free money. You get it often at closing. You don't need to pay it back. Another thing see is tax credits or tax certificates. Those give you extra cash later on when you file taxes. And again, those are an example of money you don't need to give back. So when you talk about money that you don't need to give back, are there times when there's money that you do have to get back? Yeah. So unfortunately, there are a lot of times when you do have to give the money back. Sure.

Starting point is 00:29:08 Down payment assistance often comes as a loan. In a lot of cases, we see down payment assistance loans as second mortgages. So it's a loan that uses your home as collateral, but it's separate from your primary mortgage. These tend to be low interest loans and often the loan itself is deferred. So that means you don't have to pay it back until you refinance or sell the home or if you pay off the entire mortgage. Some loans are forgivable as well. So with those, once you meet certain conditions, say living in the home for five years, at that point you no longer have to pay it back, it basically converts to a grant. And how much help are we talking about? Hundreds, thousands, tens of thousands? I'd say thousands on a, but it really depends. Down payment resource clocks

Starting point is 00:29:48 the average award at around $18,000 among the programs that it tracks. So for perspective, the median home price right now, sales price of an existing home is around $429,000. So let's do some fast math and say you're getting an FHA loan. The minimum down payment on an FHA loan is three and a half percent. So thinking about a median priced home with that three and a half percent down payment, it would be about $15,000. So yes, down payment assistance could cover your entire downpainment. but it really depends on the program and whether you qualify. And who's actually going to qualify? Because affordability is squeezing people pretty far up the income ladder these days.

Starting point is 00:30:28 The pool is actually a lot broader than you might think. So first-time homebuyers who have lower incomes are going to have the most options, but repeat buyers can qualify too. It's also important to bear in mind that a lot of these programs consider you a first-time home buyer if you haven't had an ownership stake in a home in at least three years. So you could technically be a repeat buyer and still qualify as a first-timer. Having a higher income doesn't automatically rule you out either. About one in ten of the programs tracked by down payment resource don't have income limits.

Starting point is 00:30:58 Even programs that do have income limits recognize that your needs are going to vary by location and your household size. So low income for a household that's one or two people in San Francisco is still six figures, for instance. Bottom line, don't disqualify yourself from assistance before you've looked into it. All right, let's say you qualify for one of these programs. assume that this is where the fine print on free money comes back, right? What tradeoffs might buyers be signing up for? So let's say a program gives you free money and it's structured as a forgivable loan. That sounds great, right? You don't have to make monthly payments. All you have to do is stay in the house for five or ten years and then the loan is forgiven. So the tradeoff

Starting point is 00:31:36 is if you sell sooner than that, you might have to repay some or all of that money. Maybe on the other hand, you're like, I know I'm not going to sell this house. I'm going to be here for five years, 10 years for sure. Well, in the fine print, it's not about keeping the house. It's about keeping the mortgage. You're also giving up flexibility to refinance, right? Because a refinance is when you take your existing mortgage and pay it off and get a new one. So if you're a buyer looking for down payment assistance, the most important question to ask is, what are my obligations to repay if my plans change? Right. And that seems especially relevant for buyers today who are taking on a higher rate with the hopes of refinancing if rates eventually come down from 7%. That's potentially a big

Starting point is 00:32:19 trade-off, giving up the option to refinance on your own schedule. But using down payment assistance can also affect your mortgage rate right now. It can be a lot more work for a lender to close this kind of deal and time is money. So some mortgage lenders offset the cost of working with assistance programs by charging you a higher interest rate on your primary purchase loan. So on one hand, yes, you're getting cash for the down payment or closing costs up front, but over two, time, you're potentially spending more on interest than you would have if you didn't use that assistance money. Now, don't get me wrong, assistance can still be a really big help to kind of get you past that initial hurdle. But getting the largest amount of assistance doesn't automatically mean

Starting point is 00:32:58 that you are getting the cheapest mortgage. All right, so how do you figure out which offer is actually cheaper? It's always our advice. Shop around. In this case, you're going to want to start with a short list of recommended lenders that participate in the assistance program that you're looking at. You want to compare at least three lenders from that list. Just because they're affiliated with the same program, doesn't mean they're going to offer you the exact same rate. To cover your bases and again, make sure that your assistance is really worth it, it's smart to get a couple of regular mortgage quotes outside that list, so offers that don't factor in down payment assistance. Yes, that's a lot of quotes, a lot of numbers. So you're going to want to compare them apples to apples.

Starting point is 00:33:35 Ask for a loan estimate. That's a standardized form that lets you compare the rate, closing costs, monthly payment side by side. Full disclosure, I am looking to be a first time home buyer somewhere in the next year. I get the value of shopping around, but that seems like a lot of work. Yeah, I totally get that. And if you don't want to do it yourself, a mortgage broker can really help in this kind of situation. Mortgage brokers compare offers through like a behind-the-scenes network of wholesale lenders. So it's kind of like a travel agent comparing flights on your behalf. They may also know about assistance programs that aren't widely advertised to the general public.

Starting point is 00:34:09 So a broker is a good option to have in your back pocket if you just don't feel like doing all of that shopping around yourself. Once you qualify for one of these assistance programs, how straightforward is it to actually get that money to the closing table? Yeah, because the numbers are only part of the story, right? You also want to consider a lender's experience with working with down payment assistance programs. So with down payment assistance, you're adding a lot of complexity to a transaction that already has a lot of moving parts, right? Like, it's a lot to buy home. You have inspections, the appraisal, seller concession. So you want a lender that has experienced closing deals with down payment assistance.

Starting point is 00:34:45 This is not a great time for your lender to be learning on the job. We've talked a lot about what home buying assistance can do. Kate, what can't it do? Well, it can't make an unaffordable house affordable. Assistance essentially addresses one hurdle, the cash you need up front. You still have to be able to afford the mortgage, taxes, insurance, maintenance, repairs, everything that comes after closing. Down payment assistance can be really clutch at getting you through the door,

Starting point is 00:35:10 but that's basically just the startup cost of buying the home. You need to keep in mind the costs of owning the home as well. Now, Abby, you've been reporting on this for your latest locked out column. Are there any trends that you're watching right now? Yeah, I was pretty surprised to see that down payment is popping up as an employee benefit. When we are talking about housing affordability, government efforts like the 21st century Road to Housing Act, These are great, but they will take a long time to trickle through and actually make a difference.

Starting point is 00:35:37 It's interesting to see the private sector stepping up. Employer-sponsored assistance is still pretty rare, but it is starting to pop up, usually in large employers. Earlier this year, Financial Services Company BNY Mellon announced that employees making $100,000 a year or less could get $6,500 in down payment assistance on their first home. Amazing. Like, imagine. health, dental, vision, downpayment help? Exactly. Suddenly, open enrollment is getting a lot more interesting. Kate, final thoughts.

Starting point is 00:36:10 What's the one thing buyers should remember if they find an assistance program that they qualify for? Look beyond the dollar amount. Understand exactly what you're agreeing to and make sure that the timeline and any potential tradeoffs work with your future plans as you see them right now. And remember, the assistance might get you to closing that you still have to be comfortable

Starting point is 00:36:29 with the monthly payment that comes after. it. Abby and Kate, thanks so much for joining us. Thank you. Good to be back. And thank you, Anna. That's all we've got for this episode. Remember folks that we as nerds are obligated to answer your money questions. So send them our way. You can hit us up on the nerd hotline by texting us or leaving us a voicemail at 901-730-6373. It's 901-730 nerd. Nerd. You can also email us at podcast atnerfollet.com or drop a comment on Spotify or YouTube. Anna, I will be expecting an invite to the housewarming, just putting that out there. Oh, of course. And, yeah, thank you.

Starting point is 00:37:03 And next time, we have yet another question about housing. So make sure you come and listen. But we're looking at the math on buying versus renting with a condo fee this time. Until then, follow Smart Money on your favorite podcast app that includes Spotify, Apple Podcasts, and IHeartRadio to automatically download new episodes. And we are on YouTube. Go and watch us and comment on there. And here's our brief disclaimer. We are not your financial or invest.

Starting point is 00:37:30 advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. Some companies mentioned in this episode may be nerd wallet partners but does not influence how we talk about them. And with that said, until next time, turn to the nerds. Spotify advertising connects you with an audience that's engaged and ready to discover your brand. Launch a campaign with Spotify Ads Manager.

NerdWallet's Smart Money Podcast - Get Out of a Timeshare and Find Down Payment Help to Buy a Home

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