Zero down payment, closing costs, credit score requirement

  • Putting up a down payment on a home can be a huge hurdle for some buyers.
  • Bank of America is aiming to help by launching a mortgage that doesn’t require an upfront payment.
  • It does not require a minimum credit score and instead takes into account factors such as rent and insurance payments.

Imagine being approved for a mortgage on your dream home without having to pay a down payment, pay closing costs, or have a certain credit rating.

It could become a reality for borrowers in 21 cities after Bank of America announced a new mortgage plan that aims to close the racial homeownership gap by offering eligible first-time buyers of all races home loans. affordable.

The affordable community loan solution will be available in designated markets, including historically Black and Hispanic neighborhoods located in Charlotte, Dallas, Detroit, Los Angeles and Miami. The solution requires no mortgage insurance or minimum credit score and instead uses credit guidelines based on factors such as rent, utility, phone and car insurance payments. To qualify, borrowers must complete a homebuyer certification course before applying.

“Homeownership strengthens our communities and can help individuals and families build wealth over time,” AJ Barkley, head of neighborhood and community lending for Bank of America, said in a statement to the press. “Our affordable community loan solution will help make the dream of sustainable homeownership accessible to more Black and Hispanic families.”

The Affordable Community Lending Solution is a measure of the Equal Credit Opportunity Act passed by Congress in 1974 to prohibit discrimination in the lending process. However, since 2017, the homeownership rate for Black Americans is nearly 30 percentage points lower than that for White Americans. Although the homeownership rate in the United States has skyrocketed in 2020, data shows that the gap is widening. According to the National Association of Realtors, the homeownership rate in the United States now stands at 65%, but the rate for black Americans is significantly behind, at 43%. For white Americans, the rate is 72% and for Hispanic and Asian Americans, the rate remains above 50%.

Elimination of 3 major barriers to home ownership

As inflation and rising interest rates increase the cost of home ownership, housing affordability in the United States has fallen to its lowest level in 33 years.

For many Americans, especially black borrowers — who earn less than the median American income — homeownership has become even more out of reach.

“As the gap between homeownership rates for black and white Americans has widened, it’s important to understand the unique challenges faced by minority homebuyers,” said Jessica Lautz, vice -Chair of NAR Demographics and Behavioral Information, in Housing Study. “Housing affordability and low inventory have made it even more difficult for all buyers to access homeownership, but even more so for black Americans.”

A huge barrier to home ownership for Black Americans is lack of credit, as it prevents them from obtaining loan financing.

A study by mortgage market LendingTree found that while mortgages are denied to people of all races, “the share of black buyers whose mortgage application has been declined is significantly higher than the share of the general population.” According to the company, the rejection rate for black borrowers is double the rejection rate for the overall borrowing population.

“Because lenders use credit scores to help determine a borrower’s likelihood of paying what they owe, those with lower credit scores generally have a harder time getting a mortgage approved,” said Jacob Channel, Senior Economist at Lending Tree. Initiated. “Black Americans, unfortunately, tend to have lower credit scores than members of other racial groups, which means they often have a harder time getting approved for a mortgage”

In recent years, Americans and housing experts have called for different alternatives to credit scoring in the mortgage process, as historical economic racism often disadvantages people of color.

Bank of America’s plan to ditch credit scores and instead focus on leasing and autopay could improve approval rates for BIPOC — and ultimately give them a better shot at achieving the American dream of l home ownership.