The Effect of Down Payment Assistance on Mortgage Choice
Bree J. Lang
Ellen H. Hurst
Published online: 7 June 2013
Springer Science+Business Media New York 2013
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.
Keywords Mortgage subsidies
Down payment assistance
The United States government frequently creates programs that support home own-
ership through mortgage assistance. Such programs often provide borrowers with
access to lower interest rates or with funds for a down payment. The benefits of home
ownership that motivate these subsidies have been examined at length (Rosen 1985),
but few papers empirically examine how the incentives within mortgage subsidies
alter borrower behavior.
This paper asks if receiving down payment assistance
causes borrowers to alter the type and size of their mortgages.
J Real Estate Finan Econ (2014) 49:329–351
Previous research on home-ownership programs has primarily focused on whether one-time cash assis-
tance increases home ownership among targeted groups (Feldman 2001; Listokin et al. 2001; Quercia et al.
2003; Herbert and Tsen 2005).
B. J. Lang (*)
E. H. Hurst
Department of Economics, Xavier University, 3800 Victory Parkway, Cincinnati, OH 45207, USA
E. H. Hurst