Home Buying: Recognizing The Ties That Bind

People consider a lot more than money when deciding whether to buy a home, but bankers and mortgage underwriters mainly focus on the financial factors. “For the average borrower, the mortgage contract is about making a home himself and his family,” wrote Wharton Business School professor Waheed Hussain in the Fall 2009 Communities and Banking. There’s a disconnect between the mortgage contract and the emotional bonds and social aspirations that come with purchasing a home.

Buying a home signifies long-term commitments to places, jobs, and significant others. Would-be homebuyers must then translate their emotion bonds and social aspirations into dollars and cents. For example, “how much should a person making $35,000 a year and living in an area with a high crime rate spend to give a child safer surroundings?”

“Choice Architecture” helps people sort through and weigh these factors by structuring the menu of alternatives presented to borrowers to point them toward a good decision. The menu, Hussain suggested, could be developed by community groups serving ethnic or religious communities that can turn their insights into smart lists that simplify the personal aspect of home buying. For example, if the community group knows that its members tend to have certain transportation needs, it can gather lists of housing options near public transportation when homes come on the market.

Hussain’s point for housing policy analysts and program planners is to understand your customer. “Choice architecture and smart lists, because they take into account both the personal and financial challenges underlying the mortgage decision, can help make mortgage lending a little safer for everyone.”