Understanding the Homeownership Gap for Black Women

With Black individuals facing an 84% higher mortgage denial rate than their white counterparts, what steps can Black women take to bridge the homeownership gap?

My 11-year-old self would be amazed to find out I’m a homeowner today. As a child, I believed that homeownership was exclusive to wealthy white families. Even by my twenties, while I recognized this wasn’t the case, it still felt like a distant dream until I purchased my first home at 34.

My younger self wouldn’t be surprised to learn that the Black homeownership rate in the U.S. hovers around 43%, starkly lower than the 73% for white Americans. A recent study revealed that Black applicants face an 84% higher mortgage denial rate, a troubling increase of 10 percentage points since 2019, indicating that the disparity is worsening.

“It’s alarming that in 2022, economic inequality still prevails within the financial system,” states personal finance expert Lynette Khalfani-Cox. “Homeownership serves as a vital pathway to wealth. Denying mortgages to African-Americans at such high rates excludes them from this essential opportunity and exacerbates the wealth gap.”

Even as a homeowner, I’m not exempt from these issues.

“It’s crucial to understand that this challenge extends beyond potential Black homebuyers,” Khalfani-Cox highlights. “Current Black homeowners also face significant obstacles, especially when selling or refinancing. For example, appraisals in Black and Latinx neighborhoods are more frequently undervalued, according to a 2021 Freddie Mac analysis of 12 million appraisals.”

Facing the Challenges

The racial homeownership gap has been worsened by the pandemic.

“Households of color, including renters and those with lower incomes, have reported greater housing and economic difficulties due to COVID-19,” notes Nicole Bachaud, an economist with Zillow. “Black households experienced more job losses and difficulties managing mortgage or rent payments compared to white households.”

Moreover, the surge in home values during the pandemic has intensified the divide between those who own homes and those who don't, according to Bachaud.

“While homeowners have witnessed a significant increase in their wealth, renters find the dream of ownership slipping further away,” she explains.

Prior to the pandemic, Black Americans aspiring to own homes already faced numerous hurdles.

“To enhance their chances of mortgage approval, prospective buyers should focus on raising their credit scores and saving for a down payment,” Bachaud advises. Unfortunately, both can be particularly challenging for people of color.

Research from Zillow indicates that Black and Latinx renters often struggle to save for down payments due to income disparities. Many begin their homebuying journey at a disadvantage, resulting in longer timelines to save for a deposit.

“With escalating rents and inflation eroding purchasing power, saving for a down payment is especially tough,” Bachaud adds.

Additionally, Black and Latinx potential homebuyers are less likely to receive financial gifts from family or funds from investments for down payments.

“Many Black communities lack access to traditional financial resources and are often targeted by predatory lenders, which adversely affects credit health,” Bachaud explains.

Discrimination based on race is another significant barrier for aspiring homeowners of color.

If you suspect you’ve faced discrimination, it’s important to advocate for yourself.

“File a complaint and report the issue to consumer protection agencies like the Consumer Financial Protection Bureau or the Federal Trade Commission,” Khalfani-Cox suggests. “You can also appeal a mortgage denial if you believe it was unjust. However, be aware that common denial reasons—such as poor credit, low income, or high debt-to-income ratios—can complicate the appeal process.”

Two federal laws, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), provide protections against discrimination. More information about illegal mortgage discrimination can be found through the U.S. Department of Housing and Urban Development (HUD), and if you feel discriminated against by a lender, you can submit a complaint to HUD. Additionally, check for local and state protections as well, Bachaud advises.

Smart Financial Strategies

Young Black women aspiring to homeownership should begin planning early. Focus on improving your credit score by making timely loan and credit card payments, reducing credit card balances, and reviewing your credit report for errors, Bachaud recommends. A credit score of 620 is generally the minimum needed for a conventional loan, while a score of 680 qualifies for “A-rated” credit loans.

“A higher credit score can lead to better interest rates, translating to significant savings over the loan’s duration,” Bachaud explains. “Diligently shopping for a mortgage also ensures you secure the best possible rates.”

If saving for a down payment is challenging, look for local down payment assistance programs. An accessible resource on Zillow now highlights which assistance programs may be available in specific areas.

As you search for homes, stick to properties within your financial means. Ideally, aim for monthly payments that are at or below 30% of your income.

“Though challenging in today’s competitive market, a more affordable home can enhance your loan-to-value ratio and ease monthly payments, allowing you to begin building equity,” Bachaud suggests.

Khalfani-Cox shares additional insights for individuals of color seeking home loans.

“It may be beneficial for Black applicants to consider omitting their race on mortgage applications,