In many smaller, mid-size cities where home prices are lower, families often have the stable income needed to support homeownership. Yet many families in these more affordable communities aren’t able to buy an affordable home because they can’t access a mortgage, and they don’t have the cash to buy the home outright.
Getting a small-dollar mortgage ($70,000 or less) to buy or renovate a house isn’t easy.
In 2018, there were more than 700,000 homes sold for $85,000 or less across the country. Our research has shown that homes in this price range are significantly less likely to be financed with a mortgage than higher-prices homes.
Limited financing options for lower cost homes adds a huge barrier to families who could otherwise afford these homes. Lender economics are tricky at this price point—high fixed costs and reduced revenue over the life of the loan make it harder to make a profit.
What happens instead? Those who can make an all-cash purchase, often investors, buy the home. Families may also turn to riskier seller financing vehicles like land contracts, which often have fewer borrower protections than mortgages and offer no wealth building opportunities.
Expanding access to reasonably priced small-dollar mortgages would help many households in communities with lower-than-average homeownership rates. For people of color especially, this could reduce the extreme and widening racial homeownership gap.
For example, about 10 percent of Pittsburgh’s households own a home worth less than $70,000 and 22 percent are renters. The median incomes of $36,000 and $32,000 for these owners and renters, respectively, are close enough to suggest that a well-priced small-dollar mortgage could put the renters—disproportionately families of color—in the market for a low-cost starter home.
Expanding the small-dollar mortgage market across the US would grant hundreds of thousands of households the opportunity to buy or renovate a home. This would help shrink widening homeownership gaps and strengthen low-cost housing markets around the country. Unleashing market innovation could create consumer-friendly products and lead to a robust micro-mortgage market in America.
For more of our research on the small-dollar mortgage market, see the blog post "Expanding small-dollar mortgages can put homeownership in reach for more families," and for research on black homeownership see the report Building Black Homeownership Bridges.
RESEARCH AND WRITING Sarah Strochak and Alanna McCargo
ILLUSTRATION Shannon Ryan from Made with Relish
EDITING Robert Abare and Alex Tammaro
PRODUCTION Jon Schwabish, Jerry Ta, and Robert Abare