The ability to make a smaller down payment is more likely to motivate someone to purchase a home than the availability of a lower interest rate, two economists for the Federal Reserve Bank of New York conclude in a recent study.

Andreas Fuster and Basit Zafar, senior economists in the Federal Reserve Bank's Research and Statistics Group, recently looked into the sensitivity of certain factors on the demand for housing. They say that the minimum required down payment and the available interest rates on mortgages have a significant influence on whether a person is able to purchase a home and how much they are willing to pay.

The findings were based on the results of the 2014 housing survey issued by the Federal Reserve Bank of New York's Survey of Consumer Expectations. In this survey, 1,000 households were asked about their willingness to purchase a home under varying financial situations.

Respondents were more sensitive to changes in down payment requirements. Compared to a down payment requirement of 20 percent, the willingness to pay increased by about 15 percent when households were offered the option to make a down payment as low as 5 percent.

However, this variation changed significantly based on the type of respondent. Nearly half of the respondents did not change their willingness to pay at all when the down payment percentage was lowered, including 51 percent of current owners and 31 percent of renters. The willingness to pay increased sharply for many respondents when the down payment requirement was eased, with 41 percent of renters and 13 percent of owners increasing their willingness to pay by 25 percent or more.

In particular, the willingness to pay among the 264 renters in the survey increased by more than 40 percent with the option to make a down payment as low as 5 percent. Renters were also more likely to opt for a lower percentage, with 59 percent preferring a down payment of 10 percent or less. Only 36 percent of current homeowners favored a down payment percentage this low.

By contrast, lowering the mortgage interest rates had a much less noticeable effect. The scenarios presented to respondents in the survey also sought to determine how their willingness to pay changed when the interest rate was at 4.5 percent and when it was at 6.5 percent. The willingness to pay increased by only 5 percent on average when a lower interest rate was offered.

Fuster and Zafar say the survey does not give any clear indication as to why a household is less likely to change its willingness to buy based on mortgage rates, especially since a lower rate can result in substantial savings over the life of a loan. They suggest that the change in a monthly payment based on the interest rate may seem small to a respondent compared to the larger amount of money needed for a down payment.

The survey also asked respondents how the "wealth shock" of a $100,000 inheritance would affect their attitudes on purchasing a home. On average, the willingness to pay increased by 10 percent. Renters were four times more likely to increase their willingness to buy than homeowners. Respondents also indicated that they would make significantly larger down payments with this influx of funds.

Fuster and Zafar say that changes in down payment requirements may have a larger effect on the housing market than changes in mortgage rates. In particular, they say the willingness to purchase a home increases substantially among people with lower wealth, income, and credit scores.

The economists say the findings indicate that mortgage rates may play a less substantial role in a person's willingness to buy a home than previously thought. However, they say the study also does not allow for certain factors such as how lower rates may allow a borrower to qualify for a larger loan due to relaxed payment-to-income constraints.