Study: Down Payment Assistance Buyers No More Likely to Default

November 6, 2019

A new study is debunking previous research that had cast doubts on the financial status of home purchasers who receive down payment assistance. A new working paper from the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis finds that home buyers who receive financial assistance with a down payment aren’t any more likely to default on their mortgage. Previous studies that suggested otherwise had prompted stricter lending requirements from HUD on government entities that provide down payment assistance.

Researchers from the Center for Household Financial Stability examined the performance track record of loans made with down payment assistance. The loans tracked were originated both in the lead-up and following the 2008 financial crisis. The researchers controlled for the race and ethnicity of the borrower, since they found that blacks and Hispanics have a greater overall likelihood of defaulting regardless in whether they received down payment assistance or not.

As home prices rise nationwide, more buyers have turned to down payment assistance to afford a home. There are more than 2,000 private- and government-sponsored down payment assistance programs. MarketWatch reports that Federal Housing Administration–backed loans made with down payment assistance has increased from 30% in 2011 to 40% in 2018.

“Households with [down payment assistance] were as able to benefit financially from rising markets as those without DPA,” the researchers wrote. “In setting guidelines around down payment assistance, policy makers should take care not to close off opportunities to aspiring minority home buyers.”