Nearly 90 percent of NHTF funding would go directly toward the construction or renovation of rental housing for extremely-low-income households.
Similarly, a fully funded Capital Magnet Fund would award grants to U. Department of Treasury—certified community development financial institutions CDFIs and nonprofits focused on the development of affordable housing. These organizations could use the funds to build affordable housing geared toward low-income households. Households with few resources have limited avenues for developing a sound economic base on which to build their future. Therefore, policymakers working to prevent another housing crisis must take care to not unduly burden families who are able to realize the benefits of homeownership, the largest source of household wealth in the United States.
As Alan Mallach of the Brookings Institution stresses, growing the number of low-income homeowners is not enough; policymakers must adopt measures that will "foster a sustainable model of homeownership for lower-income households. Recent homeownership rates show that Similarly, the homeownership rate for households with very low incomes was These are long-standing differences. Since the s, federal policies have eased the path to homeownership for low-income and minority families, which potentially benefits both individual households and society at large by countering poverty.
For any number of reasons, homeowners can end up losing money on their homes or earn less of a return than if they had rented over some period. This decline hit low-income and minority households especially hard because home equity accounts for a larger share of their wealth. In these counties, negative home equity was disproportionately concentrated in low-wealth, minority neighborhoods, where nearly half of the properties were either underwater or nearly so.
Compared with white neighborhoods, these borrowers were twice as likely to have little or no equity in their homes at the end of However, 46, low-income owners had a very different experience with affordable, sustainable mortgages underwritten by the Community Advantage Program CAP.
CAP, a joint community reinvestment program initiative by the Center for Community Self-Help, the Ford Foundation, and Fannie Mae, makes secondary market capital accessible to low-income and minority borrowers.
With carefully underwritten loans, these borrowers were able to build wealth even during tough economic times. Financial gain is not the only reason a majority of American households aspire to own a home; social benefits are also associated with homeownership. In a comparison of attitudes about homeownership held by renters and owners, Harris Interactive for the National Association of Realtors found owners more satisfied with most aspects of their community, including access to the outdoors and natural resources, healthcare, shopping, educational opportunity, entertainment, arts and culture, transportation, and a family-oriented environment.
Homeowners viewed their communities as stronger, safer, and more stable than did renters and were more likely to report that they felt connected to others, knew their neighbors, and were civically engaged. Although William Rohe and Roberto Quercia also found that owners were more satisfied with life and had larger social networks than the renters with whom they were compared, they did not find that "participation in voluntary associations, neighborhood satisfaction, self-esteem, or perceptions of opportunity" were significantly related to homeownership.
They hypothesized that low-income and higher-income buyers may experience the impact of homebuying differently, that the impacts of ownership are realized over time, and that methods used for measuring those impacts may be inadequate.
Homeowners such as Aishon Jones, standing in front of her new home in Syracuse, New York, seek the economic and social benefits associated with successful homeownership. NeighborWorks America Other positive effects identified with homeownership include improved outcomes for children. Researchers have not yet determined whether such outcomes can be attributed directly to homeownership, the stability it invokes, unidentified or uncontrolled variables, particular research methods, or selection bias in which the children would have realized similar benefits regardless of whether their parents achieved homeownership.
Findings also indicate that when borrowers make some investment in the down payment, no matter how small, the result is better outcomes for their children than when they put none of their own money down.
Despite its potential benefits, however, homeownership is a risk, and its outcomes may be neither anticipated nor desired. If a homeowner has too much house to pay for, does not refinance to take advantage of interest rate declines, experiences unanticipated repairs or trigger events such as a divorce or medical emergency , has a home that declines in value or appreciates very slowly, or has a mortgage with predatory terms, then ownership is difficult to sustain.
Historically, disparities have existed in access to homeownership by low-income and minority households. One focus of these inquiries, arising from concerns about fairness and discrimination, has been differences in homeownership rates across income and racial or ethnic groups figure 1. The persistence of these disparities, according to a body of related research, suggests that demographic and economic factors play a significant role in shaping homeownership trends.
Analyses of the composition of the homeownership gap have concluded that socioeconomic variables explain a large percentage of the difference, leaving a smaller portion attributable to discrimination and unidentified influences. Source: U. Homeownership rates are highest for older households, married couples, and those with more education.
These characteristics are related to income and influence homeownership decisions differently across income levels. Typical factors that affect household formation include racial and ethnic differences, age structure of the population, marriage and divorce patterns, typical leaving-home ages, the cost of living, housing costs, and living in group quarters for military or educational purposes. Along with income, household wealth determines whether families can afford down payment and closing costs and can sustain homeownership after purchase.
In a study commissioned by HUD, minorities and whites at similar income levels were equally likely to become homeowners, but wealth was a better predictor of minority transition to homeownership.
Minority households required higher levels of wealth to achieve the same probability of homeownership as white households had, all other things being equal. Wealth gaps were evident across ethnic and racial groups. In one example, found by examining measures of wealth among renters, a large share of black and Hispanic renters had so little wealth that zero-down payment loans were the only mortgage option available to them.
The net worth of white households at the 50th percentile level of wealth was roughly equivalent to the net worth of black and Hispanic households at the 75th percentile.
The differential in household wealth continues, according to the Pew Research Center. One-fifth of U. Of this group, 35 percent were black households, 31 percent were Hispanic, 19 percent were Asian, and 15 percent were white. Location and geography also influence homeownership disparities across groups through their effect on housing supply and demand.
Central cities, for example, historically have had lower homeownership rates than suburban areas, partly because homeownership has been associated largely with single-family homes that are less prevalent in cities. As a result, minorities and low-income families concentrated in inner cities have had access to fewer homeownership opportunities.
Homebuyers and volunteers provide sweat equity and labor to build Habitat for Humanity homes in Miami, Florida. Governments, foundations, lending institutions, and community-based organizations have made efforts to address these barriers and to facilitate successful homeownership. Such entities work, often jointly, to create homeownership opportunities, innovative financing tools, and retention strategies.
Affordability assistance helps low-income families overcome wealth barriers and achieve favorable debt-to-income ratios that keep monthly payments low. Examples of this type of backing include down payment assistance, grants, subsidies, homeownership vouchers, forgivable loans, and soft second mortgages. Even small amounts of down payment assistance increase the probability of moving first-time buyers into homeownership. Through these programs, HUD awards block grants to cities and states, who then decide how to use the funds.
HOME monies are dedicated to enhancing local affordable housing strategies that increase homeownership opportunities for low-income people. One study found that nearly all HOME programs offer assistance with down payment and closing costs in addition to other types of support such as loan guarantees, write-downs of the sales price, and interest rate buy-downs.
Between and , the American Dream Downpayment Initiative now part of HOME helped more than 26, low-income, first-time homebuyers with the biggest hurdle to homeownership: down payment and closing costs, plus rehabilitation expenses. National and regional nonprofits and consortia receiving SHOP grantees developed 16, homeownership housing units for low-income families between and Grantees may carry out SHOP activities themselves or contract with nonprofit affiliates to develop SHOP units, select homebuyers, coordinate sweat equity and volunteer efforts, and help arrange for interim and permanent financing for homebuyers.
To significantly reduce purchase prices, homebuyers are required to put in a minimum number of hours of sweat equity, including painting, carpentry, trim work, and drywall, roofing, and siding installation. Without this sweat equity contribution, total development costs would range from 0. Renters of HUD-assisted units may become homeowners via the Housing Choice Voucher Homeownership program, which has been responsible for nearly 15, homeownership closings in the past decade.
This program allows participating public housing agencies to offer residents the option to apply their rental voucher subsidy toward monthly ownership expenses. After satisfactorily completing a preassistance counseling program that covers home maintenance, budgeting and money management, credit counseling and credit repair, and mortgage financing, the purchaser finds an eligible home.
In its analysis, Abt Associates found that the number of public housing agencies choosing to implement this program grew from 12 pilot sites in to more than in Foreclosure, delinquency, and default rates were quite low for these buyers, who were mostly single mothers with children, minorities, and people with disabilities moving into neighborhoods with higher homeownership rates and slightly lower poverty rates than the neighborhoods where they had rented.
An evaluation of a low-income homeownership program that preceded HOME found that 10 percent of participating families became owners by leasing to buy. This option allowed homebuyers who needed a little more time to accrue the savings needed for a down payment or to clear up credit problems while living in the home they would eventually purchase.
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