Financing Low-Cost Homes Should Be Easier

Pew research examines the difficulty of originating small mortgages, borrowers’ use of alternative financing, and new opportunities for lenders

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Most homebuyers in the United States use mortgages to purchase their homes. But outdated policies have made small mortgages—loans for homes priced below $150,000—increasingly expensive for lenders and thus unavailable to millions of qualified and creditworthy borrowers. With limited access to small mortgages, many families seeking to buy low-cost homes turn to alternative financing arrangements, such as lease-purchase agreements and land contracts, that leave them vulnerable to eviction and financial losses. A 2021 survey by The Pew Charitable Trusts estimated that 36 million Americans had used alternative financing to pursue homeownership at least once in their lives.

Pew conducts research that examines the alternative financial arrangements Americans use to buy low-cost homes and the barriers that make it difficult for lenders to offer small mortgages. The goal is to inform policymakers and other stakeholders about market practices, evaluate borrowers’ experiences, and help modernize regulations to improve transparency and outcomes for alternative financing while encouraging better access to mortgages for low-cost homes.

Issue Brief

Land Contracts Pose 5 Major Risks for Homebuyers

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Issue Brief

As of 2022, about 1.4 million Americans were using a form of alternative financing known as land contracts for their home purchases. In a land contract—also called a contract for deed or a land installment contract—the home seller extends financing directly to the buyer without the involvement of a third-party lender.

Article

Small Mortgages Are Essential to Rural Communities

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Article

Many Americans in rural areas struggle to purchase low-cost homes, in part because small mortgages—those for under $150,000—are in short supply. With housing costs at all-time highs, surveys show that many renters have become pessimistic about their chances of ever owning a home. Research indicates that plenty of low-cost properties remain available, especially in rural areas where land values are low, but a lack of small mortgages makes it difficult for homebuyers to take advantage of these opportunities. As a result, many would-be homebuyers are stuck competing for a limited supply of affordable rental housing or are forced to buy using risky, costly alternative financing arrangements.

Article

Do Lease-Purchase Arrangements Lead to Homeownership?

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As policymakers look for ways to expand homeownership and help more homebuyers access credit, lease-purchase arrangements have received renewed attention not only from legislators, but from investors, prospective homebuyers, and nonprofit organizations.

An illustration of the sun setting behind a single story home with a mailbox and planter garden.
An illustration of the sun setting behind a single story home with a mailbox and planter garden.
Issue Brief

Small Mortgages Are Too Hard to Get

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Issue Brief

Mortgages are essential financial tools that create a pathway to homeownership for millions of Americans each year. In recent years, however, many homebuyers have struggled to obtain small mortgages to purchase low-cost homes, those priced under $150,000. This problem has garnered the attention of federal regulators, including the Federal Housing Administration (FHA) and the Consumer Financial Protection Bureau (CFPB), who view small mortgages as important tools to increase wealth-building and homeownership opportunities in financially undeserved communities.

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