How Shared Equity Homeowners Compare on Mortgages, Credit, and Monthly Payments

At a time when home prices are rising faster than household incomes and lending standards are historically tight, homeownership remains out of reach for many households. Shared equity homeownership programs aim to increase access to homeownership for these families by providing more affordable mortgage options. Through deed restrictions, community land trusts, and limited equity cooperatives, shared equity programs allow income-eligible families to purchase homes at below-market prices. In return for the subsidized purchase, a share of the owner’s potential capital gains from resale stay with the home to maintain affordability for future purchasers. To understand the effect of shared equity programs on the financial outcomes of participating households, this study examined nine shared equity programs across the United States. Researchers compared the financial characteristics of participating households with similar first-time home buyers in their respective metropolitan regions.

Using administrative data from shared equity homeownership programs, credit data from a large credit reporting firm, and demographic data from the US Census Bureau’s American Community Survey, researchers conducted two analyses to measure the effectiveness of the programs over a four-year period from 2012 to 2016. The authors used a difference-in-difference approach to compare changes in financial outcomes of shared equity purchasers with those of similar purchasers in the same region. They also used a propensity scoring approach as a robustness check. Results were broadly similar across the two approaches. Compared with other purchasers, shared equity purchasers were younger, had significantly lower credit scores, incomes, and levels of revolving debt, and were more likely to live in areas that had higher shares of non-Hispanic African Americans.

Key findings

• On average, purchasers in a shared equity homeownership program had $103,378 less credit on open mortgage trades compared with other first-time homebuyers with similar credit scores living in the same region.
• On average, shared equity purchasers paid $736 less on all credit accounts each month (including mortgages) compared with other first-time homebuyers with similar credit scores living in the same region.
• Shared equity purchasers were 11.4 percentage points less likely to have an open home equity line of credit (HELOC) than other first-time homebuyers. This is likely because several of the shared equity programs do not allow participants to take out HELOCs or other additional financing on their purchased homes.
• Shared equity homeowners performed just as well on their mortgages as other purchasers, with no measurable differences in their 90- to 180-day mortgage delinquencies, nonmortgage delinquencies, credit scores, credit utilization rates, or revolving debt.
• Shared equity purchasers were slightly more likely to have at least one account in collections than other first-time homebuyers in their region.

Research and policy implication

The authors conclude that shared equity programs are a viable mechanism for increasing homeownership in a sustainable manner that allows the subsidy to live long past one household. They also note that although the findings of the study demonstrate the positive near-term effects of shared equity programs, future research should examine the long-term effects of shared equity affordable homeownership programs on savings and equity.