The number of Black and Hispanic Americans who own their home is significantly lower when compared to their white counterparts, despite both those racial groups making noteworthy gains in homeownership during the coronavirus pandemic. But the racial homeownership gap doesn't have to exist, according to housing finance experts.
The homeownership rate among Black Americans, which hit 45.7% in 2023, rose slightly during the pandemic, but progress has grown stagnant in the years following the global health crisis. Meanwhile, homeownership among Hispanic Americans has steadily grown during the past decade and currently sits at 49.5%. That compares to 73% among white Americans, according to National Association of Real Estate Brokers data.
The longstanding percentage gap between the races is concerning, but it could be narrowed with extra help from the federal government, the experts said.
"The growth in the U.S. is going to come from people who have been historically marginalized," Vanessa Perry, a public policy professor at George Washington University, whose research focuses on marketplace discrimination and the housing market, said in an interview. "If the housing market is going to grow, opportunities for more homeownership are going to have to be made available."
An infusion of affordable homes nationwide combined with much lower mortgage rates would spur more homebuying for all Americans, but there are a few strategies that would help Black and Hispanic Americans in particular, experts said.
1. Redirect federal down-payment assistance
The U.S. Department of Housing and Urban Development, or HUD, sends funding to state and local governments so agencies can offer extra down payment dollars to low-income Americans looking to buy a home. The federal down-payment assistance programs are effective, but one tweak in the application process would benefit Black Americans, said Jung Choi, a researcher with the Washington, D.C., economic and social policy think-tank Urban Institute.
"If we actually target down-payment assistance toward young adults who don't have a home-owning parent — compared to an income criterion which is what most applications have out there, we'll do a better job at targeting Black and Latino households," Choi said in an interview. "That's a better way to structure that assistance in this market."
The key to this step, Choi said, is capping the number of applicants who earn the assistance because, otherwise, flooding the housing market with a new wave of down-payment-ready house hunters would increase demand and send home prices skyward.
There were 1,676 down-payment assistance programs nationwide as of June 2023, according to an Urban Institute estimate.
2. Eliminate down payments for FHA loans
Most Americans finance their home the traditional way — through a bank or dedicated mortgage lender. However, a sizable amount of the U.S. population has signed for a home loan through the Federal Housing Authority, or FHA. One of the most notable features of an FHA loan is homebuyers only have to contribute 3.5% of a house's price as a down payment.
To qualify for an FHA loan, applicants must have a FICO score of 580 or above, agree to pay mortgage insurance and have a debt-to-income ratio of 43% or less. Applicants must also show proof of steady income and use the property they're trying to purchase as their primary residence.
If the federal government lowered that minimum percentage from 3.5% to zero percent, that would make "a huge impact" because Black and Latino applicants are a huge share of FHA applicants, Choi said. She noted how home loans from the U.S. Department of Veterans Affairs already sit at zero percent and added the FHA could do the same.
To be sure, signing a zero-percent-down mortgage comes with its own set of drawbacks. Lenders typically attach a much higher interest rate on zero percent loans, partly because they view the applicant as a high default risk. Zero-percent down mortgages often also carry miscellaneous fees, higher monthly mortgage payments, and force a new homeowner to purchase private mortgage insurance.
3. Target tax credits to specific geographical areas
Part of the reason Black America's homeownership rate is stagnant is because that population cannot find enough affordable homes in their respective neighborhoods to purchase, Perry said.
Offering more homebuyer education programs and eliminating the need for down payments might help a little, but those steps still wouldn't move the needle on Black homeownership, Perry said.
"If we don't deal with the [housing] supply issues, none of this matters," she said.
To spur more affordable homes, the federal government should expand and offer a beefed-up version of the Low-Income Housing Tax Credit to developers — particularly those who want to build condominium units, especially in opportunity zones, Perry said. The tax credits should also be offered to potential homeowners who want to rehab their current home or completely renovate an abandoned single-family home, she said.
The federal LIHTC program was launched in the late 1980s to give apartment developers tax breaks in exchange for charging lower rents. Opportunity zones are part of another tax-incentive program, created by the Tax Cuts and Jobs Act of 2017, that target economically distressed neighborhoods throughout the nation that typically have a large collection of low-income residents or people of color.
Since 1987, developers have built 3.65 million rental housing units using LIHTC, according to HUD. The credits also help build or rehab roughly 100,000 rental units every year, HUD said.