Financing Low-Cost Homes Should Be Easier

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.

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.

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.

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.