Final 3 Down Payment Program Myths Debunked
In April, we celebrated Financial Literacy and the signing of the Fair Housing Act. While both are critical initiatives, bridging the racial homeownership gap is more than a 30 day effort. Let’s keep the momentum going.
Despite gains made after the signing of the Fair Housing Act in 1968, currently 71 percent of Asian Americans, 54 percent of Hispanic Americans, and 63 percent of White Americans can afford to buy the typical home compared to only 43 percent of Black Americans.
Black homeownership rates have been in decline for the past twenty years. And since homeownership remains the main engine for wealth building, this decline is affecting generations to come.
The lack of generational wealth means large debts like student loans may prevent Black homebuyers from securing a mortgage. According to the National Association of REALTORS® 2021 Snapshot of Race and Home Buying in America, Black homebuyers reported an average amount of $40,000 in student loan debt.
Black homebuyers were also found to be rejected for mortgage loans at a rate 2.5 times greater than White applicants. The main reason? Debt-to-income ratios.
As first generation homebuyers, many youth in underserved communities are frightened by the overwhelming process of buying a home. A lack of education and experience leaves many feeling as if homeownership isn’t attainable. That’s simply not true.
Seeking out a HUD-approved housing counselor is a good first step. These trusted advisors clear the path to homeownership by providing advice on buying a home, renting, defaults, foreclosures, and credit issues. Studies have shown that pre-purchase education leads to mortgage literacy that can diminish the risk associated with homeownership.
Buyers don’t need 20 percent down. Low down payment options have been around for a long time. In fact, data shows that low down payment loans with sound underwriting (loan is fully documented, income verified) are just as successful as loans with large down payments.
There are also down payment assistance programs available in nearly every market nationwide. These programs provide down payment and/or closing costs assistance, so homebuyers can retain some savings after closing for things like home repairs and other unexpected expenses.
There is a lot of misinformation and distrust surrounding the homebuying process. As an industry, we have to provide the tools and resources to empower young homebuyers to take that first step.
Fair housing and financial literacy benefit everyone. As the saying goes, “If you are more fortunate than others, it’s better to build a longer table than a taller fence.” Let’s build more wealth and improve communities by breaking down the barriers to homeownership once and for all.
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