"Location, location, location" has long been held as a primary factor in real estate sales. Turns out the same might be said for successful home loans.
New research from Ohio State University reveals low-income homeowners who get their mortgages from a local lender — within 10 miles of their new home — were less likely to default on their loan than borrowers who go with more distant lending institutions.
The rule seems to apply even when comparing identical loan products at the same interest rate.
“Local banks seem to offer some protection to homebuyers, particularly those with low incomes who may be seen as risky borrowers," according to Stephanie Moulton, Assistant Professor at the university's John Glenn School of Public Affairs.
Researchers hypothesize local lenders look beyond simple credit score when underwriting their home loans — to other factors like the borrowers' length of time spent at their job and whether they make regular deposits in a savings account.
“This kind of information may give a more complete picture of whether a person can really afford a mortgage, particularly for higher-risk borrowers,” Moulton says.
The research was partly funded by the U.S. Department of Housing & Urban Development.