The truth about black women and homeownership

Given that black applicants are denied mortgages at a rate 84% higher than white applicants, can black women do anything to help close the racial gap in homeownership?

My 11-year-old self would be shocked to learn that I own a home. Growing up, I thought only rich white people could buy houses. Although, when I was 20 years old, I he knew this wasn’t true yet He felt true until I bought a house of my own at age 34.

I guess my younger self wouldn’t be surprised to learn that currently the The black homeownership rate in the US is only about 43%, compared to 73% for white Americans. It wouldn’t surprise you either. a recent Zillow study who found that Black applicants are denied a mortgage at a rate 84% higher than white applicants. This is an increase of 10 percentage points from 2019, which means that the mortgage approval gap between black and white applicants is not improving, but rather widening.

“It is distressing, and frankly appalling, that in the year 2022 there is still so much economic inequality and so many barriers built into the financial system,” says one personal finance expert. Lynette Khalfani-Cox. “Home ownership is one of the greatest pathways to building wealth. Therefore, African Americans being denied mortgages at disproportionately high rates leaves us out of this crucial area and widens the wealth gap.”

And just because I already own a home, doesn’t mean it’s clean.

“It is also important to realize that this problem affects more than just future Black homebuyers,” says Khalfani-Cox. “African Americans who are at the moment homeowners are also negatively affected, even when they want to sell or refinance their homes. Case in point: Appraisals in Black and Latino neighborhoods are more likely to underperform, according to a 2021 Freddie Mac study of 12 million appraisals.”

When the odds are against you

The racial gap in home ownership is another social problem that has been exacerbated by the pandemic.

“Households of color, as well as renters and low-income households, have been more likely to report encountering housing and economic challenges because of the pandemic,” he says. nicole bachaudZillow economist. “Black households were more likely than white households to report a loss of job or income and difficulty keeping up with mortgage or rent payments.”

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Additionally, the massive increase in home values ​​that has occurred over the course of the pandemic is widening the gap between the haves and have-nots, says Bachaud.

“Homeowners have seen the wealth in their homes skyrocket, while renters have seen the dream of home ownership slip further and further away,” adds Bachaud.

Even before COVID, however, African Americans who dreamed of homeownership had the odds stacked against them.

“The two main things prospective homebuyers should do to improve their chances of approval is to try to get their credit score as high as possible and rack up a down payment,” says Bachaud. But both tasks can be challenging for people of color.

Zillow Research found that Black and Latino renters have a harder time saving for a down payment due to income inequality. Many Black and Latino renters start the home buying process at a disadvantage because they have lower incomes, which means it takes them more years to save for a down payment.

“Saving for a down payment can be especially difficult when rents are soaring and inflation erodes purchasing power,” says Bachaud.

In addition, potential Black and Latino homebuyers are less likely to have gifts from family and friends or money from investments to draw on for a down payment.

“Black communities tend to have limited traditional financial services and many more predatory lenders, which contributes to poor credit health,” adds Bachaud.

And, of course, there is also the possibility that potential owners of color will be discriminated against because of their race.

If you think this has happened to you, stand up for yourself.

“Speak up, file a complaint, and report the offending entity to consumer protection groups, such as the Consumer Financial Protection Bureau wave Federal Trade Commission”, says Khalfani-Cox. “You can also appeal a mortgage denial if you believe you were wrongfully denied credit. Just keep in mind that the most common reasons for denials, such as poor credit, low income, or a high debt-to-income ratio, can make a mortgage appeal an uphill battle.”

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But keep in mind that youTwo federal laws, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), offer protection against discrimination. In addition to the FTC, You can also learn more about what actions or policies may be considered unlawful mortgage discrimination from the US Department of Housing and Urban Development (HUD) and if you believe you have been discriminated against by a lender or creditor, you can make a complaint with HUD. Also check for additional state and local protections, says Bachaud.

Make smart money moves

Young black women who dream of owning a home should start planning now. Improve your credit score by making loan and credit card payments on time, paying discount credit card balances and check your credit report for potential problems, says Bachaud. A score of 620 is considered the minimum credit score to qualify for a conventional loan, while 680 is the lower limit for A-rated credit loans.

“The higher your credit score, the better interest rate you are likely to be offered, which can mean the difference of thousands of dollars over the life of your loan,” says Bachaud. “Diligently buy a mortgage it can also help ensure you get the best rate possible.”

If you’re having trouble saving for a down payment, look for down payment assistance programs in your area. A available resource is a new feature on Zillow home listing pages that shows shoppers what assistance programs they may be eligible for at that location.

And as you shop for your home, be sure to choose properties within your budget. Your goal is for your monthly payments to be close to or below 30 percent of your income.

“While not an easy feat in today’s ultra-hot market, more affordable housing will improve a borrower’s loan-to-value ratio and make monthly payments much less onerous, while allowing the homeowner to begin building equity.” Bachaud says.

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Khalfani-Cox offers some additional advice for people of color looking to buy a home.

“I hate to say it, but it may be wise for black people seeking home loans to omit their race on mortgage applications,” she says. “Banks, credit unions and lenders ask about your race, but this information is voluntary and you don’t have to reveal your race.”

hope of a home

Despite the staggering statistics on the racial gap in homeownership, there is hope. Khalfani-Cox is encouraged by the work of Juan Esperanza Bryantwho heads operation hope and The Promise Homes Company, which are making great strides to improve black homeownership rates.

Bachaud also sees improvements on the horizon.

“A small step in the right direction is a recent change by Fannie Mae and Freddie Mac to their underwriting program that allows rent payment history to be considered when evaluating a first-time homebuyer’s credit,” he explains. “This helps level the playing field for those who have been systematically excluded from the formal credit system.”

And it’s time for me to do my part too, Khalfani-Cox believes it’s important for black women like me who are homeowners to talk about homeownership – the good, the bad and the ugly – with other women of color.

We need to talk to each other more about the value of owning a home, as well as the pros and cons,” he says. “I’m a big believer in home ownership, but I also believe you should only buy a home when you’re emotionally and financially ready for the rights and responsibilities of homeownership.”

That means being honest about the challenges of the homebuying and homeownership process, but also openly celebrating successes.

“I’m lucky enough to own seven properties,” says Khalfani-Cox. “My husband and I tell everyone in our community, especially black women, how we have used real estate not only to create wealth but also to leave a legacy for our children.”

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