Non-Conventional Financing for New Home Sales Surges in 2023, Rising to 32.4% of the Market

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Nationwide, non-conventional financing options for new home sales saw a significant increase in 2023, according to a National Association of Home Builders (NAHB) analysis of Census Bureau Survey of Construction (SOC) data. These alternative financing methods, which include cash purchases, FHA loans, VA loans, and other unique funding sources, accounted for 32.4% of the market, a notable rise from 28.1% in 2022. This 4.3 percentage point increase signals a growing shift toward non-traditional home financing methods as buyers seek alternatives to conventional loans.

Despite the surge in non-conventional financing, conventional loans remained the dominant method for purchasing new homes, representing 67.6% of the market. However, this figure is lower than the 71.9% share seen in 2022, reflecting a decline in the reliance on traditional financing.

Regional Breakdown: Cash Purchases Lead the Way

Regionally, cash purchases stood out as the most popular non-conventional financing method in several areas. The East South Central region led the nation, with 24.6% of homes started being purchased with cash. Other regions that saw significant cash purchases included:

  • East North Central: 22.0% of homes were bought with cash.
  • New England: 16.9% of homes were cash purchases.
  • Mountain: 12.3% of homes.
  • Middle Atlantic: 12.0% of homes.
  • West North Central: 10.6% of homes.

Interestingly, cash purchases did not dominate non-conventional financing in the South Atlantic, West South Central, and Pacific regions, where other types of financing, like FHA and VA-backed loans, played a larger role.

FHA-Backed Loans Surge in Popularity

Federal Housing Administration (FHA)-backed loans gained notable traction in 2023, especially in the West South Central region, where they accounted for 20.8% of homes started. This is a substantial increase from the 12.9% market share recorded in 2022, highlighting the growing appeal of FHA loans, particularly in this part of the country.

In contrast, the New England division reported the lowest use of FHA-backed loans, with only 1.2% of homes started using this financing method in 2023. This stark regional disparity underscores how local economic conditions and housing markets can impact financing choices.

VA-Backed Loans and Other Financing

Veterans Affairs (VA)-backed loans also played a role in non-conventional financing, particularly in the South Atlantic region, where they accounted for 5.9% of new home sales. However, the use of VA loans was far from uniform across the country. In New England, for example, no homes started in 2023 used VA-backed financing, indicating that this option may be less attractive or accessible in some regions.

Other financing methods, such as loans from the Rural Housing Service, Habitat for Humanity, individual lenders, and state or local government mortgage-backed bonds, were most prevalent in the East North Central region, where they collectively accounted for 5.6% of the market. In contrast, the Middle Atlantic region reported the lowest share of these financing sources, at just 0.9%.

Conclusion: A Growing Trend Toward Non-Conventional Financing

The 2023 rise in non-conventional financing options reflects a shifting housing market, where buyers are increasingly exploring alternatives to traditional home loans. Cash purchases remain a popular option in many regions, while FHA and VA-backed loans continue to offer viable pathways to homeownership for specific groups of buyers.

As economic conditions and housing market dynamics evolve, the trend toward non-conventional financing may continue to grow, offering more flexibility to a diverse range of homebuyers across the country.

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