Free and Clear American Homeowners

Posted by: Nalina Varanasi    Tags:      Posted date:  January 9, 2013  

So far we have used our unique Negative Equity data primarily to identify underwater and delinquent homeowners. We decided to switch gears this time and look at the other end of the mortgage spectrum, that is, we examine where and who are the American homeowners that have paid off their mortgage in its entirety or never even had a mortgage. Nationwide, using Zillow’s Negative Equity 2012 Q3 data; we find 29% (20.6 million) of homeowners own their home outright. West Virginia tops the state list with the highest percentage of free and clear homeowners (45%) followed by Louisiana (39%) and Arkansas (38%) as shown in the bar graph below.

At the county level, we find 1,684 counties out of a total of 2,159 counties for which we have data, have a percentage of free and clear homeowners that is greater than the national average as shown in the county level heat map below – counties shaded in red are those whose percentage of free mortgagees is less than 29% (the national average) and those shaded green have greater than 29% homeowners that have paid off all their mortgage.

Geographically, the percentage of free and clear homeownership is to a large extent driven by the median home values in different areas across the nation. In particular, at the county level we find the free and clear homeownership rate is negatively correlated with the median home values in these counties. This is indicated by the scatter plot below between the Zillow Home Value Index and the free and clear homeownership rate in these counties. For example, in Hidalgo County in Texas, the percentage of homeowners with no mortgage is 49% and its ZHVI is $75,400 whereas Loudon County in Washington, DC has a free and clear homeownership rate of a mere 8% and a ZHVI of $389,800. Of course, there are other demographic factors that determine how soon homeowners can pay off their entire mortgage or buy a home outright and we examine two of them below.

Two important demographics that influence free and clear homeownership are age and credit rating of primary mortgagees. First, we consider age. Figure 4A below shows the percentage of free and clear homeowners sliced by age cohort. In 4B, we show free and clear homeowners as a percentage of overall homeowners in each age group. Two interesting patterns emerge when looking at figure 4A- the first one being the obvious increase in percentage of free and clear homeowners with increase in age; 65-74 year olds are most likely to be free and clear (20%) followed by 74-84 year olds (18%). This pattern is due to the fact that the longer someone owns a home the longer they have to pay off their mortgage, therefore increased length of ownership leads to more free and clear homeowners. Ownership of a home is correlated with the age of the owner. Additionally, older homeowners most likely have increased savings for a down payment, a stable job with a steady stream of income for monthly mortgage installments and are able to either pay off their mortgage very quickly or even buy the house outright.

In 4B, when we examine free and clear ownership as a percentage of homeowners in each age group, we find 35% of 20-24 year olds are free of mortgages. These are probably homes bought mostly in cash by parents or guardians or by young millionaires. Homeowners ages 25-49 have similar rates of free and clear homeownership which suggests that the increasing trend we observe in figure 4A for the same age groups is actually due to an increase in the homeownership rate with increase in age.

When we slice free and clear homeowners by their VantageScore representing their credit rating, we find 44% have a credit rating of 800-900 which is the second highest credit rating as shown in figure 5A. In 5B, we look at free and clear homeowners as a percentage of all homeowners in each credit score group. An interesting finding is that only 16% of the homeowners in the highest credit rating of 900-990 are free and clear; a possible reason for this maybe that these homeowners choose not to pay off their mortgages and diversify their savings to safeguard against potential depreciation in home values as was the case in the 2007-2011 housing market crash.

Figure 5B shows homeownership by VantageScore. We find that 29% of low credit homeowners (501-600) are free and clear. They are likely buying lower-priced homes, which is confirmed in figure 6. Figure 6 plots the distribution of sale price of homes bought by low credit free and clear homeowners. We find that 53% of homes were sold for $100K and less, while 85% of homes were sold for $200K and less.

It is reasonable to conclude that the free and clear homeownership rate varies across the country depending on location specific home values and characteristics of the primary mortgagees. We find, among the 100 leading metros (ranked by population size); a third of the metros have free and clear homeownership rates higher than or equal to the national average of 29%. McAllen, TX has the highest percentage of free and clear homeownership rate of 49% followed by Sarasota, FL at 41% and Scranton, PA at 40%. The free and clear homeownership rate of 49% in McAllen, TX is partly explained by its low ZHVI ($75,500) compared to the national ZHVI of $153,800. We also find that the percentage homeowners in McAllen, TX with a credit score below 600 (12%) is twice that of at the national level (6%) and hence these homeowners most likely require all cash or a higher down payment to buy their homes. Sarasota, FL; on the other hand, has an older population which possibly leads to a higher free and clear homeownership rate. The percentage of 55 and older primary mortgagees is 66% in Sarasota, FL compared to 49% nationally.


Zillow’s Negative Equity data incorporates mortgage data from TransUnion, a global leader in credit and information management, to calculate various statistics. All personally identifying information (“PII”) is removed from the data by TransUnion before delivery to Zillow. Overall, the data cover over 800 metros, 2,100 counties, and 21,900 ZIP codes across the nation. To calculate free and clear homeownership rate, we compute the number of overall homeowners and number of homeowners with no outstanding mortgage debt by location and demographics. We exclude investor and rental homes.

About the author
Nalina Varanasi
Nalina was an Economist at Zillow.