For most middle-class Americans, the majority of their wealth is tied up in the equity of their home. For most, homeownership is a family tradition. It’s a simple and effective way to increase financial standing and stability. Many people have the opportunity to use their home as a means to provide money for their children’s college education through refinancing. Generally speaking, homeownership is seen as the first step on the path towards providing financial security for the family. For many African Americans, the path to homeownership isn’t so easy. Let’s take a look at some of the challenges faced by BIPOC families as they strive to find their way on the path to homeownership.
Lack of lending opportunities
From the Great Recession onwards, African American families do not always enjoy the affordable mortgage rates that the typical white family does. An FDIC study done in 2015 found that, on average, the typical African American borrower pays about 24 more basis points on a mortgage compared to white borrowers. When financial pressures like inflation crunch a family’s budget with higher cost, it becomes more difficult to pay the bills. With the recent increase in interest rates, African American families may be bumped out of the housing market in its entirety.
The average American household brings in about $70,000 each year, according to the United States Census Bureau. The average African American household brings in substantially less than that, according to the Pew Institute. In 2022, the median African American household income was just $46,400. If you are looking to purchase a home in most areas of the United States, you need an average income of about $70,000. The income disparity makes it harder for African Americans to own a home.
Lack of generational wealth
Generational wealth increases the chances of homeownership. According to the Urban Institute, your chances of owning a home increase by about seven to eight percent if your parents also owned their home. The study found that out of two families with respective wealth of $260,000 and $200,000 each, the family with $260,000 of wealth were 10% more likely to own a home. The study also found that the median income gap between white and black individuals and the generational wealth gap is largely responsible for the 24% gap.
The situation has gotten worse over time
The gap between African American families and white families has also gotten worse over time. In 1960, before the dawn of the Civil Rights Movement, 65% of white families owned their own home, while 38% of African American families owned their own home. In 2022, 74.6% of white families owned their own home, while only 45.3% of African American families owned their own home.
Between the 1950 and 1970, African American homeownership actually increased from 35% to 42%. There were many reasons for this, but during the 1950s, the FHA reduced the minimum downpayment to 3%.
Where are the best areas of the country for a BIPOC family to own a home?
Between 2010 and 2021, African American homeownership increased modestly in New York (3%), Delaware (3%), Illinois (2%) and South Carolina (2%), according to the most recent Census Bureau’s American Community Survey. Some of the areas of the country with lower levels of African American homeownership included Mississippi, Ohio, Tennessee, Texas, and Washington, D.C. When the housing market was enjoying low mortgage rates, price increases on housing made it extremely difficult for an African American family to own a home in California, Utah, Florida, Oregon, and other states that had high housing prices.
Where is progress being made?
The National Association of Real Estate Brokers routinely compiles information on African American home ownership. Between 2020 and 2021, there were some improvements made for millennial African American families. Millennials made up the largest segment of African American homebuyers in 2020 and 2021, largely due to reduced interest rates, better spending habits, and remote work. Mortgage applications for African American millennials also did not dip as much as white millennials during the same timeframe after their peak. Even though homeownership for African Americans remains difficult, millennials are able to find the opportunity of home ownership in softer real estate markets.
There are also programs that help African American families purchase a new home. Some of these are very generous and even include some aspects of loan forgiveness. Here are a few of them:
- The National Homebuyers Fund: The National Homebuyers Fund is a non-profit organization that offers a grant that can be used as part of certain types of loans. The grant is usually about 5% and the loan becomes forgivable five years after the closing date.
- The Downpayment Towards Equity Act: This was an act passed by Congress in 2022. It awards up to $25,000 in grant money towards the purchase of a home to first-time homebuyers and renters in certain situations.
- The Homebuyer.com Forgivable Mortgage: Recipients of this loan must qualify for an FHA loan, have an average credit rating, and typically must apply for a 30-year mortgage.
There are other bright spots as well. The Bank of America has a low-cost loan program for African American and Hispanic homebuyers. Additionally, organizations are also helping African American families on the path towards home ownership.