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Spotlight on Research: Down Payment Assistance Plays Critical Role in Affordable Homeownership

Author

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  • Marvin M. Smith

Abstract

In the aftermath of the recent Great Recession, there has been a tightening in mortgage lending practices. This cautious atmosphere has been prompted in large part by the rash of foreclosures in the housing market that accompanied the financial crisis. One potential safeguard is the existence of a down payment requirement that must be met by prospective homebuyers as a condition of securing a mortgage. The rationale is that when individuals invest their own money in the form of a down payment, the potential homebuyers will be more motivated to maintain their mortgage obligations. For those potential homeowners who need help in complying with the down payment requirement, there is down payment assistance. Down payment assistance plays a crucial role for some low- and moderate-income (LMI) individuals in achieving their goal of homeownership. A concern has arisen, however, that the availability of down payment assistance might diminish the influence of using personal funds as a motivating factor to follow through on mortgage responsibilities. Allison Freeman and Jeffrey Harden examine the factors that underscore the need by LMI homeowners for down payment assistance and the impact of down payment assistance on mortgage performance.1 The following is a summary of their study.

Suggested Citation

  • Marvin M. Smith, 2016. "Spotlight on Research: Down Payment Assistance Plays Critical Role in Affordable Homeownership," Cascade, Federal Reserve Bank of Philadelphia, vol. 2, April.
    • Handle: RePEc:fip:fedpca:0057
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    File URL: https://www.philadelphiafed.org/community-development/spotlight-on-research-down-payment-assistance-plays-critical-role-in-affordable-homeownership
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