Borrowing Capacity and Financial Decisions of Low-to-Moderate Income First-Time Homebuyers






  • Stephanie Moulton ( and Cäzilia Loibl ( are both Associate Professors at The Ohio State University. Anya Samak ( is an Assistant Professor, and J. Michael Collins ( is an Associate Professor, both at the University of Wisconsin-Madison. The research reported herein was performed pursuant to grants from the US Social Security Administration (SSA) funded as part of the Financial Literacy Research Consortium and from The Ohio State University's Office of University Outreach and Engagement. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the federal government.


This study documents the extent to which first-time homebuyers seeking a mortgage accurately estimate their borrowing capacity and how this is associated with their decisions regarding mortgage debt and the take-up of a free offer of financial coaching. We find that consumers who underestimate their nonmortgage debt (31.5% of the sample) also take out larger mortgages relative to income. Consumers who underestimate or overestimate their total debt as well as their monthly debt payments are more likely to accept the offer of financial coaching. Moreover, overconfidence in financial matters reduces the take-up of financial coaching. These biases in perceived financial status appear to be systematically related to behavior among a group of relatively inexperienced consumers. These findings suggest that efforts to extend homeownership may need to include debiasing mechanisms to help less informed consumers accurately assess their current debt levels and ability to make ongoing mortgage payments.