Targeting first-generation homebuyers for financial help

Targeting first-generation homebuyers for financial help
The Urban Institute‘s Housing Finance Policy Center recently posited that down payment assistance for first-generation homebuyers could help turn the tide of systemic racism by reducing intergenerational wealth disparities.

Researchers said federal, state, and local housing policies have “systematically excluded Black families and other families of color from homeownership,” with one UI study projecting the Black-white homeownership gap – at more than 30 percentage points in 2018 – will continue to grow if current policies stay the same.

The median wealth of white adults’ (aged 18 to 34) parents, $215,000, far exceeds the typical wealth of Black ($14,397) and Latinx ($34,980) young adults’ parents, according to UI researchers.

“First-generation buyers who do buy homes often take on greater debt to do so or delay homeownership for years, making it difficult for homeowners of color to build wealth at the same pace as white homeowners,” said Jung Choi, a senior research associate with the Housing Finance Policy Center.

Janneke Ratcliffe, associate vice president of research and policy at the HFPC, added that in addition to closing the gap between the first mortgage and the cost of buying the home, down payment assistance can leave borrowers with cash reserves for repair needs or other expenses.

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“Because homebuyers borrow less for the first mortgage, down payment assistance can also lead to lower payments and greater home equity when it is a grant or is forgiven over time,” Ratcliffe said.

In an interview with HousingWire in February, Michael Neal, HFPC senior research associate, said homeownership has important implications for family outcomes – and not just through wealth and housing equity.

“We know that homeowners in a particular community tend to have a stronger say and tend to be much more involved in local politics than, say, renters,” Neal said. “So, all of that, I think, is combined and really puts minority homeownership into a very key light.”

According to new research by Morgan Stanley, equalizing Black-white homeownership rates over the next 10 years would create more than 5 million more homeowners of color, generate nearly 800,000 new long-term jobs, and raise up to $400 million in additional tax revenues relative to current trends.

To determine how many people fall under the definition of a first-generation homebuyer, UI imposed an income limit of 120% of the area median income, or AMI, to the 34% of households who currently rent. Data from the survey showed that 35% of renters with incomes up to 120% of the AMI have parents who were not homeowners, and the share is much higher for Black households (65%) than for white households (21%).

UI looked at four different renter groups – besides first-generation homebuyers – that would also be eligible for down payment assistance: renters whose parents also rent; renters who haven’t owned a home in the past three years; renters whose parents and themselves haven’t owned a home in the past three years; and renters whose parents never owned or went from owning to renting in 2007-2013.

The number of potential program participants per category, UI estimates, are 5.37 million, 5 million, 4.37 million, and 2.51 million, respectively.

Of the 5.37 million potentially impacted in the first group, 32% would be Black, 31% would be white, and 27% would be Latinx, according to researchers.

“Without explicit race-based targeting, down payment assistance programs focused on first-generation homebuyers would not fully close the racial homeownership and wealth gaps,” Ratcliffe said. “But, on the other end of the spectrum, down payment assistance programs that don’t consider any structural barriers to homeownership could in fact increase those gaps. Targeting first-generation buyers can address inequities and boost the long-term, intergenerational economic outlook for many families who have historically been denied access to homeownership.”
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