The Potential of Downpayment Assistance for Increasing Homeownership Among Minority and Low-Income Households

Christopher E. Herbert

Winnie Tsen

This article reflects the views of the authors and does not necessarily reflect the views of the U.S. Department of Housing and Urban Development.

The purpose of this study is to investigate the potential for downpayment assistance efforts to increase homeownership. The study analyzes data from the 1996 panel of the Survey of Income and Program Participation, which tracks some 11,000 renter households over a 3-year period. The analysis has two stages. In the first stage, a parametric proportional hazard model is estimated of the transition to homeownership based on a variety of demographic and financial characteristics of each household and on economic conditions in the markets in which those households reside. In the second stage, the results of the hazard model are used to simulate the impact of cash grants to households on the probability of their becoming homeowners over time. The simulations are run for all renter households and for subgroups of low-income, African-American, and Hispanic households. Results confirm that liquid financial assets are statistically significant predictors of homeownership. Although the importance of wealth in predicting homeownership is in keeping with the findings of previous research, a somewhat surprising finding is that the largest impact on the probability of homeownership is associated with savings of between $0 and $1,000; although savings of between $1,000 and $5,000 have a lower marginal impact on this probability, savings of between $5,000 and $20,000 add only slightly to the likelihood of buying, and savings above $20,000 have no statistically significant impact. These results suggest that downpayment assistance programs that provide even modest amounts of assistance can have a significant impact on the number of low-income and minority households that buy homes.