No Down Payment, Credit-Score Requirement

  • Putting together a down payment on a home can be a huge hurdle for some buyers.
  • Bank of America aims to help by launching a mortgage that doesn’t require upfront payment.
  • It doesn’t require a minimum credit score but considers factors like rent and insurance payments. 

Imagine getting approved for a mortgage on your dream home without having to make a down payment, pay closing costs, or have a minimum credit score.

That 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 homebuyers of all races affordable home loans. 

The Community Affordable Loan Solution will be available in appointed markets, including in historically Black and Hispanic neighborhoods located in Charlotte, North Carolina; Dallas; Detroit; Los Angeles; and Miami. The plan requires no mortgage insurance or minimum credit score and instead uses credit guidelines based on factors like rent, utility, phone, and auto-insurance payments. To qualify, borrowers must complete a homebuyer certification course prior to application.

“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” AJ Barkley, the head of neighborhood and community lending for Bank of America, said in a statement. “Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families.”

The Community Affordable Loan 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 has been nearly 30 percentage points lower than that of white Americans. Although the US homeownership rate soared in 2020, data shows the gap is widening. According to the National Association of Realtors, the US homeownership rate now stands at 65%, but the rate for Black Americans lags significantly behind at 43%. For white Americans the rate is 72%, and for Hispanic and Asian Americans the rate remains above 50%.

Eliminating 3 major roadblocks to homeownership 

As inflation and interest-rate hikes increase the cost of homeownership, housing affordability in the US has fallen to a 33-year low.

For many Americans, especially Black borrowers — the majority of whom earn less than the US median income — homeownership has grown further out of reach. 

“As the gap in homeownership rates for Black and White Americans has widened, it is important to understand the unique challenges that minority home buyers face,” Jessica Lautz, the National Associate of Realtors vice president of demographics and behavioral insights, said in a housing study. “Housing affordability and low inventory has made it even more challenging for all buyers to enter into homeownership, but even more so for Black Americans.”

A huge hurdle to homeownership for Black Americans is a lack of credit, because it prevents them from obtaining loan financing. 

A study conducted by the mortgage marketplace LendingTree found that while mortgages are denied for people of all races, “the share of Black homebuyers who have had their mortgage requests denied is notably higher than the share of the overall population.” According to the company, the denial rate for Black borrowers is double the denial rate for the overall borrower population.

“Because lenders use credit scores to help figure out how likely a borrower will be to repay what they owe, those with lower credit scores generally have a harder time getting approved for a mortgage,” Jacob Channel, the senior economist at LendingTree, told Insider. “Black Americans, unfortunately, tend to have lower credit scores than members of other racial groups do, which means that 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-lending process, as historical economic racism often puts people of color at a disadvantage.

Bank of America’s plan to ditch credit scores and instead focus on rental and auto payments could improve approval rates for people of color — and ultimately give them a better shot at the American dream of homeownership.

https://www.businessinsider.com/bank-of-america-zero-down-mortgages-buy-home-cheaper-easier-2022-9