Many Americans Resort to Risky Financing to Purchase a Home
For many Americans, homeownership is and has been the largest source of wealth over the past century. Homeownership is a key step to achieving that financial security and establishing generational wealth.
But as home prices skyrocket and interest rates creep over 5%, fewer low-and moderate-income families and individuals have the means to purchase a home. Many Americans lack access to credit and capital and are resorting to risky financing and alternative purchase arrangements.
Land contracts and other kinds of alternative financing have been around a long time, with roots in the race-based redlining that blocked Black Americans from traditional mortgages. But legal aid experts say they became more common after the Great Recession, and as housing and rental costs have skyrocketed. They may be the only option for some, but these alternative deals pose a financial risk to families with the least to lose.
“People of color and those in rural areas are more likely to use these risky arrangements”
A survey by The Pew Charitable Trusts finds 36 million Americans — about 20% of all borrowers — have used alternative ways to finance a home at some point, including 7 million currently in such arrangements. The borrowers are largely low-income, more likely to live in rural areas, and disproportionately Hispanic and Black, reflecting the racial gap in homeownership.
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Learn more about the lack of affordable homeownership here and here.