Barriers to Entry: Closing Costs for First-Time and Low-Income Homebuyers

Fannie Mae's latest analysis on affordable housing solutions shows closing costs are a meaningful obstacle to sustainable homeownership for first-time and low-income first-time homebuyers, including Black and Hispanic borrowers. In its analysis of approximately 1.1 million home purchase loans Fannie Mae acquired in 2020, Fannie Mae found that more than 14% of low-income first-time homebuyers had closing costs equal to or exceeding their down payment. If this group of borrowers had median closing costs as a percent of purchase price equal to the median for all buyers, their costs would have been reduced by $3,580 - a meaningful change that could lower the barrier to homeownership. The authors, Mark Palim and Nuno Mota, make the case that that closing costs are regressive, meaning that low-income homebuyers pay more in median relative closing costs than all borrowers.

The paper closes with potential solutions that could reduce or eliminate closing costs as a barrier to homeownership.

Click here to read the Working Paper.