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Financing a Low-Cost Home Should Be Easier

Pew research looks at the shortage of small mortgages, alternative financing, and the consequences for borrowers

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Financing a Low-Cost Home Should Be Easier

Homeownership is the largest source of wealth for most American families, and obtaining a safe, traditional 15-to-30-year mortgage is a key step toward achieving financial security. But outdated housing policies and financial regulations have made small mortgages—those for homes priced under $150,000—expensive for lenders and unavailable for millions of qualified and creditworthy borrowers, especially Black, Hispanic, and Indigenous households and those in rural communities. With limited access to small mortgages, many of these families turn to alternative financing arrangements, which often involve financial risks and lack many of the protections traditional mortgages offer.

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Tara Roche

"Alternative financing is pitched as another pathway to homeownership when mortgages are not available, but the reality is many alternative financing borrowers never achieve their goal of owning."

Tara Roche, project director The Pew Charitable Trusts' housing policy initiative

Pew studies the alternative financial arrangements that people use to buy low-cost homes and examines the barriers that lenders face to offering small mortgages in order to inform policymakers and other stakeholders about market practices, evaluate borrowers’ experiences, and promote the availability of safe, affordable home loans.

70%

Small mortgage lending fell by nearly 70% between 2004 and 2021

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36 million Americans

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36 million Americans have used alternative financing at some point to pursue homeownership. TWEET

29.5%

The homeownership gap between Black and White Americans is 29.5%, the largest since 1970. TWEET

34%

34% of Hispanic homebuyers have used alternative financing at some point, compared with 21% of all homebuyers. TWEET

Alternative finance

Many homebuyers have used risky alternative arrangements such as land contracts, lease-purchase agreements, and personal property loans in part because they could not find traditional mortgages for homes priced under $150,000.

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Family eating dinner at table
Issue Brief

Millions Using Risky Financing Arrangements to Buy Homes

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Issue Brief

Most homebuyers in the U.S. use mortgages to purchase their homes. However, many others use alternative financing arrangements, such as rent-to-own, that research indicates are generally riskier, more costly, and subject to far weaker consumer protections and regulatory oversight than traditional mortgages.

Home Visitors Annai Burrola (white dress) and Jessica Apodaca (red shirt) meet with Santa Fe, NM families via United Way of Santa Fe as part of the First Born Home Visit Program.
Home Visitors Annai Burrola (white dress) and Jessica Apodaca (red shirt) meet with Santa Fe, NM families via United Way of Santa Fe as part of the First Born Home Visit Program.
Fact Sheet

Hispanic Homebuyers Most Likely to Use Risky Financing

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Fact Sheet

Hispanic homeownership has risen each year since 2014, accounting for more than half of U.S.

Alex Horowitz

“Consumers usually pay more, often much more, to use alternative financing than the same consumer would pay in a mortgage.”

Alex Horowitz, project director The Pew Charitable Trusts' Housing Policy Initiative

Small mortgages

Low levels of small-mortgage lending disproportionately affects first-time homebuyers, low-to-moderate-income families, and some communities of color who are more likely than other buyers to purchase low-cost homes and to rely on these loans.

Getty Images
Getty Images
Article

HUD Equity Action Plan Aims to Improve Access

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Article

In April, the U.S. Department of Housing and Urban Development (HUD) released its Equity Action Plan, part of the of the Biden-Harris administration’s whole-of-government equity agenda. HUD’s proposal is the first from any of the housing or mortgage agencies and aims to eliminate the racial homeownership gap and increase equity in homeownership, in part, by improving access to financing for home buyers.

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.

Manufactured Housing

Manufactured homes are an important but underutilized source of low-cost housing for Americans. But a lack of safe and affordable financing for these homes has been a barrier for prospective homebuyers. 

Lack of Financing Keeps Many Out of Manufactured Homes
Illustration of a manufactured house behind a blue grid background
Article

Lack of Financing Keeps Many Out of Manufactured Homes

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Article

Americans face significant challenges when it comes to securing housing. Record low supply has driven the ability to purchase a home out of reach for many, and lack of access to safe and affordable financing has made the pathway to homeownership more difficult for prospective homebuyers, especially for Black, Hispanic, and Indigenous families.

A hand holding a pen with papers laid out on a coffee table
A hand holding a pen with papers laid out on a coffee table
Article

Woman Loses Manufactured Home to Risky Financing

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Article

About 7 million U.S. homebuyers currently use alternative home financing—in which buyers make payments directly to sellers, using instruments such as land contracts, seller-financed mortgages, lease-purchase agreements, and personal property loans.

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