More New-Home Buyers Turn to Unconventional Loans

October 21, 2019

As prices rise, more buyers are turning to unconventional loans to finance their new-home purchase, particularly in some western southern markets.

The share of unconventional financing is comprising more than a quarter—or 28.6%—of the new-home build market, a new analysis of census data by the National Association of Home Builders shows. Unconventional forms of financing include loans insured by the Federal Housing Administration, VA-backed loans, cash purchases, and other forms of financing, such as through the Rural Housing Service or loans through the state or local government.

Some areas of the country are relying on the alternative forms of financing more than others. For example, the West South Central region of the U.S. had the highest share of unconventional forms of financing at 38.7%, followed by the South Atlantic at 31.4%. However, buyers tended to use the least amount of unconventional forms of loans in the East South Central region of the U.S. (at 11.6%) and the Middle Atlantic region (18.5%).

FHA-backed loans are the most popular form of unconventional financing of new-home purchases, and these tend to be most common in the South Atlantic, West South Central, and Pacific regions of the U.S. About 11% of buyers nationwide used FHA-backed loans for their home purchase. Cash purchases followed in popularity at 10% nationwide in 2018. The New England region area was the most likely to see cash-financed purchases at 21.5%.

VA-backed loans comprised 5.6% of the market nationwide. They are the most common in the Mountain division at 8.8%.

Other forms of financing, such as through the Rural Housing Service, Habitat for Humanity, and loans from state or local governments were the most common in the Pacific region of the U.S., comprising 4.6% of the market share. Nationally, these other forms of financing were used by 2.1% of buyers.

NAHB chart 10.21.19

National Association of Home Builders


More Than a Quarter of New Homes Had Non-Conventional Financing in 2018,” National Association of Home Builders’ Eye on Housing blog (Oct. 18, 2019)