The hypothesis for this study is that the origination fees (in the form of insurance premiums and funding fees) associated with FHA and VA financing will (1) be capitalized into buyer reservation values and (2) result in price discounts relative to conventional loans with lower loan-to-value ratios. Using a database of nearly 9,000 home sales in the San Antonio, TX area, hedonic analyses indicate that both types of government-backed financing are associated with reductions in selling prices. The results may imply a cost shifting behavior on the part of buyers and an implicit subsidy on the part of sellers. The regressions reveal that the price discounts for FHA underwriting are about 4% relative to conventional financing. VA discounts, as expected, are smaller, ranging from about 2% to 3.46%. The results are likely a result of the fact that FHA and VA homebuyers are able to shift some costs to sellers
