Paul K. Asabere () (Temple University Philadelphia, PA 19122) Forrest Huffman () (Temple University Philadelphia, PA 19122)
Abstract
This study examines the effects of FHA and VA mortgage financing on home prices. FHA and VA borrowers receive higher loan-to-value ratios (LVRs) and payment to income (PTIs) ratios relative to conventional underwriting standards. These more lenient standards are offset by the payment of additional financing costs in the form of default insurance premiums and origination fees. The hypothesis for this study is that the origination fees (in the form of insurance premiums and the funding fees) associated with FHA and VA financing will (1) be capitalized into buyer reservation values and (2) result in price discounts relative to conventional loans with lower LVRs. Using a database of nearly 9,000 homes sales in the San Antonio, TX area, we perform hedonic analyses that indicate that both types of government backed financing are associated with reductions in selling prices. The results of this study may imply a cost shifting behavior on the part of buyers and an implicit subsidy on the part of sellers. Our preferred regressions find that the price discounts for FHA underwriting are about 4% (3.81% to 4.14%) relative to conventional financing. VA discounts, as expected, are smaller, ranging from about 2% to 3.46%. Given the prior literature, we hypothesize that the results are likely a result of the fact that FHA and VA homebuyers are able to shift some costs to sellers.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323 Email: Web page: http://www.aresnet.org/
Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323 Email: Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm
For technical questions regarding this item, or to correct its listing, contact: (JRER Graduate Assistant/Webmaster).
Related research
Keywords:
Find related papers by JEL classification: L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.