Setting the Record Straight: Part 5

This is the last blog in our 5 part blog series, in which we set the record straight on affordable housing.

Theory 5: Homeownership should be restricted to those who can put 20 percent down.

Even though studies have shown that, on the average, owning a home is less expensive than renting, it is difficult for the working poor to accumulate enough money for a dow payment. Michael Sherraden writes that, “One of the constraints on homeownership as a wealth building vehicle for low- to moderate- income households is institutional barriers to credit… Liquidity constraints, stemming from the uncertainty of lenders, prevent the extension of credit even when the working poor might be a good risk.”

Since the mortgage lending crisis began in 2007, down payment requirements have come under scrutiny. In May of 2011, the FDIC and Federal Reserve even proposed a 20% down payment requirement. While this remains unsettled, down payment requirements have remained part of the debate over mortgage finance. Within this debate is the belief that all of the down payment money must come from the borrower himself.

However, loans in the Community Advantage Portfolio do not fit into this new prototype. “A down payment of 1 to 3% of the home price is not uncommon, nor is a minimum borrower contribution of $500.”  Furthermore, a substantial amount of CAP’s borrowers had help meeting their down payment requirements and closing costs.

Using data from 2003 to 2011, Allison Freeman and Janneke Ratcliffe found that “having received assistance toward one’s down payment and closing costs has no significant effect whatsoever on CAP homeowners’ mortgage performance.”

For a closer look at the study, click here.

In conclusion, this five part blog series has used information from the UNC Center for Community Capital to refute claims about homeownership for lower- income families. These findings are particularly interesting because they have held true through recent market turmoil. Michael Sherraden argues that, “Homeownership is an important component of a long- term asset building strategy: the accumulation of small amounts of savings in an IDA can be put toward a home, which in turn can allow owners to send children to college, start small businesses, or pass along wealth to the next generation.”

New Century IDA is proud to be a part of the asset uilding movement by helping low- to moderate- income working families in Forsyth County become first time homeowners!

This home was purchased by a New Century IDA graduate in 2009.