Urban Institute study makes the case for a 100% LTV FHA mortgage

A new study from the Urban Institute concludes that the Federal Housing Administration (FHA) could offer zero-down payment mortgages to first-time homebuyers without significantly increasing default risk or endangering its Authored by Alexei Alexandrov, Laurie Goodman, Ted Tozer and The findings draw on Federal Housing Finance Agency (FHFA) public data that covers roughly 47,000 loans originated between 2013 and 2021. Performance was measured by whether a loan entered 90-day This premium could be financed into the loan balance and is calibrated to keep the Mutual Mortgage Insurance (MMI) Fund whole while preserving affordability. The authors noted this structure may also encourage borrowers who can afford a down payment to contribute one.

To further mitigate risk, the researchers recommend limiting the zero-down Eliminating the down payment constraint entirely would make an estimated 6.5 million additional renter households “ready to buy.” (The authors note that updated data would likely show the barrier composition has changed somewhat since 2018).

The report also shows an ongoing psychological barrier: Renters consistently overestimate the financial requirements needed to qualify for a mortgage. Many assume a 20% down payment and a 700-plus credit score are mandatory, even though the median FHA borrower puts down less than 5% and has a sub-700 credit score.

Addressing concerns that moving more renters into homeownership would inflate