Low-Down-Payment Lending: A Critical Step toward Equitable Homeownership

Publication Date

October 2014

Author(s)

Allison Freeman

Client/Funder

Ford Foundation

Read the Publication

Down payment requirements directly affect access to homeownership and is, therefore, an issue of economic justice. New research suggests higher down payment requirements may be as unnecessary as they are unjust.

For low- and moderate-income (LMI) Americans, owning a home might be the main, or only, opportunity to build wealth, finance education, promote retirement security and pass on an inheritance to children. Traditionally, for LMI households the down payment has acted as an obstacle to this means of wealth creation. While LMI households might be able to afford mortgage repayment and home maintenance, they are prevented from doing so by the costly entry into homeownership.

A decade of center research on a nationwide affordable mortgage program demonstrates that lending to LMI borrowers can be successful, provided the loans are carefully underwritten and structured for affordability. Down payments can be small, and borrowers can succeed even if they do not contribute the entire down payment themselves.

Should legislators and policymakers choose to increase down payment requirements despite evidence that this is not needed, then they must also increase their support for community programs to help all qualified borrowers make their down payments.