We’ll get new data this week about existing home sales, which fell last month. Owning a home has long been a key path to building wealth, but getting on that path can depend on who you are.
Black borrowers, for example, are way more likely than white borrowers to be turned down for a mortgage.
Specifically, nearly 1 in 4 mortgage applications made by Black people are denied, compared with 1 in 10 for white borrowers. That’s according to federal data from the 2023 Home Mortgage Disclosure Act, compiled recently by Zillow.
There are stark consequences of this disparity. Barely half of Black households in the U.S. own their homes, compared with three-quarters of white households.
The most common reason lenders give for turning down Black would-be borrowers? Credit history. That’s a record of your finances and how you’ve handled debt, captured in your credit score.
Black consumers are more likely than white ones to have a lower credit score or no score at all.
“So right there you’re out of the race, the traditional way that we assess your ability to repay a mortgage,” said Michael Neal, a senior fellow in the Housing Finance Policy Center at the Urban Institute.
Neal also pointed out historic discrimination in the housing market still has consequences for Black borrowers today.
In the past, lenders could turn Black applicants away, because they lived in poor and often primarily Black neighborhoods. This is called redlining, and it’s illegal now, but it still affects Black buying power.
“You’re denied a loan because of redlining,” Neal said. “Now you don’t have the assets to pass to a future generation, whereas say, whites did.”
And if white people already own their homes, their descendants benefit, said Orphe Divounguy, a senior economist at Zillow.
“First-time buyers are getting help from what we call the Bank of Mom and Dad,” he said. “And so, people without that help are faced with having to save longer to come up with the funds necessary for down payment in today’s environment.”
And a higher down payment makes it easier to qualify for a mortgage.
There are government programs that assist with down payments, and Divounguy also advocates for credit scores to consistently factor in more data.
“Rent, phone bills, utility payments, all of those should count towards your credit, so that people who may not have had access to banking can still have a credit history,” he said.
And when they’re ready, become homeowners.
As this country’s population grows increasingly diverse, Michael Neal of the Urban Institute sees two consequences to not addressing the disparity.
“No. 1, you know, massive inequality,” he said. “No. 2, in my mind, challenges for the industry in terms of how they’re going to drive revenue.”
So, he said, there’s a business case as well as a social one for helping more Black borrowers become homeowners.
