The Effect of Down Payment Assistance on Mortgage Choice

Abstract

Lack of wealth for a down payment is one of the most recognized barriers to home ownership. In response to this barrier, state and federal government have implemented many programs that provide down payment assistance to potential home buyers. Numerous studies have shown that this assistance can increase homeownership rates, but few have measured how receiving assistance may alter borrowing behavior. Using data from a down payment assistance grant in the Midwest, this study compares the loan type and size of grant recipients to other borrowers that report similar income and buy homes in the same census tract. Results indicate grant recipients are more likely to use conventional loans, which are less expensive than other loan types that require a smaller down payment. Estimates also suggest that the grant may reduce loan size for borrowers who are on the margin of using a conventional loan.

With (More Than) a Little Help from My Bank. Loan-to-Value Ratios and Access to Mortgages in Italy

“…A recent report by McKinsey (2014) suggested that collective saving schemes might enhance the financing of house purchases, especially in emerging markets. Lang and Hurst (2013) show that public help for down payments alters the financial decisions of potential mortgagors, all in all leading to a safer choice of down-payment ratios: in section 8 we show that policies simulated within our framework produce results that mirror very closely the actual outcomes of policies implemented in other countries or periods.…”

“…The joint consideration of the two indicators allows us to assess access to the housing market through a sustainable mortgage. Lang and Hurst (2013) call 'the income constraint', i.e. the burden on income of the periodic outlays to repay the mortgage (Kutty, 2005, Girouard et al, 2006.…”

Appraising Home Purchase Appraisals

“…In practice, borrowers have varying access to liquidity or the ability to provide a down payment, and cash constrained borrowers will locate at LTVs above 80 percent, requiring them to pay mortgage insurance premiums and higher interest rates. 4 A mortgage down payment represents the single largest expense most U.S. households will experience, and it is an oft-cited deterrent for homeownership (Engelhardt 1996;Lang and Hurst 2014;Acolin, Bricker, Calem, and Wachter 2016). When prospective buyers make an offer on a home, they typically would have calculated their down payment and intended LTV, with some foreknowledge of the impact of their down payment on the 3 These requirements are ensconced in regulations governing the real estate lending activities of federally regulated banking institutions and in the underwriting standards for loans purchased by Fannie Mae and Freddie Mac or those insured by the FHA.…”

Appraising Home Purchase Appraisals

“…The availability of the pre-appraisal LTV ratios allows us to analyze the borrower's ability to adjust the down payment. A mortgage down payment represents the single-largest expense most U.S. households will experience, and it is an oft-cited deterrent for homeownership (Engelhardt 1996;Lang and Hurst 2014;Acolin et al 2016). When prospective buyers make an offer on a home, they typically would have calculated their intended down payment and LTV ratio, with some foreknowledge of the impact of their down payment on the cost of the mortgage and its likelihood of being underwritten (Best et al 2015).…”