Debt Usage and Mortgage Choice: The FHA-Conventional Decision

Purchase of a house requires three interrelated household financial decisions: what level of debt to obtain, whether to select an adjustable or fixed rate mortgage (ARM or FRM), and whether to choose an FHA or a conventional loan. While some have analyzed the mortgage debt decision and the ARM/FRM c...

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Bibliographic Details
Published in:Journal of urban economics 1997-03, Vol.41 (2), p.202-217
Main Authors: Hendershott, Patric H., LaFayette, William C., Haurin, Donald R.
Format: Article
Language:English
Subjects:
Debt
Money and credit
Mortgages
Urban economics
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Summary:Purchase of a house requires three interrelated household financial decisions: what level of debt to obtain, whether to select an adjustable or fixed rate mortgage (ARM or FRM), and whether to choose an FHA or a conventional loan. While some have analyzed the mortgage debt decision and the ARM/FRM choice, virtually no one has studied the FHA/conventional mortgage choice or the interrelation among the mortgage debt and instrument decisions. In our sample of 819 young home purchasers, debt and mortgage choice is driven by a need to finesse the downpayment and monthly payment constraint ratios and to lower mortgage insurance costs.
ISSN:0094-1190
1095-9068
DOI:10.1006/juec.1996.1094