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.

The Importance of Generational Wealth

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.

Education Is Key

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.

What About the Down Payment?

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.

Keep the Momentum Going

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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We all know April is tax month, but did you know it’s also Financial Literacy Month? Maybe you’ve got the basics of budgeting and saving down, but you’re unsure of the steps you need to take to reach your longer term financial goals.

One of the biggest financial decisions you’ll make in your life is buying a home. It’s a top goal for the majority of millennials. More than nine of out 10 renters ages 25 to 34 aspire to own a house, according to Fannie Mae’s National Housing Survey. But, in a Zillow survey, renters said they view saving for a down payment as the top barrier to homeownership.

However, the larger problem may be that many aspirational homebuyers are actually down payment illiterate. What do we mean by that? It means you aren’t sure of the down payment requirement or options when buying a home. For example, do you think 20 percent down is required? You’re not alone—39 percent of non-homeowners think they need more than 20 percent down for a home purchase. (The truth is that there are many low down payment options available and the average down payment for a first-time homebuyer today is just 6 percent.)

One homebuyer recently told us that he planned to cash out his 401k to come up with his down payment. Both are misunderstandings about down payments could set you back from your longer term goals.

Homebuyer education is on the rise.

We’re seeing a growing interest in financial topics, resources and early research.  Today, more homebuyers are doing online research before engaging with an agent or lender.

Homebuyer education is another critical step. Most education is required if you use a down payment program. But, it’s a resource that can benefit all types of buyers. In a recent Down Payment Resource survey of future homebuyers, 72 percent of the respondents said they plan to complete an online or in-person homebuyer education course.

You’ll walk away understanding the complete home buying process, how to budget and common pitfalls to avoid. Today, you’ll find both in person (classroom setting) or online options to choose from.

Know your options.

To be down payment literate, means you know you have options. What down payment is best for you depends on many factors. While 20 percent down isn’t required, it could be the better option for you, or maybe not. If takes you 5 more years to save for the 20 percent down, all while your rent increases, then it may be advantageous to buyer sooner and use a low down payment loan. Plus, you may qualify for a program that can help with your down payment and/or closing costs. In our survey of future and recent buyers, more than 90 percent said they wanted information on programs from their agent or lender.

Most homebuyers don’t know there are more than 2,500 different programs available across the country. A national survey by NeighborWorks America found that 71 percent of Americans are not aware of or unsure about the down payment assistance open to middle class homebuyers. Homebuyer programs can be used with both low down payment and conventional loans.

Don’t borrow from your own future.

Before you cash out your 401k or other retirement investments for a down payment, put on the breaks and consult with your lender, financial advisor or nonprofit that offers loan counseling. There are often more options for your down payment that won’t deplete your retirement savings.

While your home purchase can also be a long-term wealth builder, it’s first and foremost your home and your community. It’s important to diversity your investments. So, keep your 401k and let it continue to grow. Find out if you may qualify for a homebuyer program that could help fund your down payment.  There are also tax credit programs that can help you save over the life of the loan.

Financial literacy resources to help.

The good news is there are many online resources to help you increase your financial (and down payment) literacy.

Here are few to try during Financial Literacy Month:

• Neighborworks America, a network of community development and housing counseling counselors. Find one in your area.
• eHomeAmerica, provides online certified homebuyer education and counseling for homebuyers and homeowners
• Down Payment Resource, searchable database of 2,500 programs that can help homebuyers save on down payment and closing costs.
• MyMoney.Gov, provided by the Federal Financial Literacy and Education Commission of more than 20 Federal entities that are coordinating and collaborating to strengthen financial capability and increase access to financial services for all Americans.
• AnnualCreditReport.com, provides a free credit Report to decipher where you stand, initially, with your credit profile position before preceding to the Bank for pre -approval on a loan.
• CreditSmart, Freddie Mac’s signature programs of 12 modules and a curriculum designed to help consumers understand, build and maintain better credit.
• HOME, Fannie Mae’s app for homebuyers, provides step-by-step information on the homebuying process.
• Think Glink, articles, tips and resources on a wide range of personal finance, home buying and consumer topics.
• NerdWallet, consumer content on banking, investments, mortgages and more designed to provide clarity for all of life’s financial decisions.