No Down Payment, Credit-Score Requirement

Credit-Score Requirement
A Bank of America storefront. Getty Images

  • Organizing a down payment on a home can be a big hurdle for some buyers.
  • Bank of America aims to help by launching a mortgage that does not require payment up front.
  • 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 gap in homeownership by offering eligible first-time homebuyers of all breeds affordable home loans.

The Community Affordable Lending Solution will be available in designated markets, including historically black and Hispanic neighborhoods located in Charlotte, North Carolina; Dallas; Detroit; The Angels; and Miami. The plan does not require mortgage insurance or a minimum credit score, and instead uses credit guidelines based on factors such as rent, utility, phone, and auto insurance payments. To qualify, borrowers must complete a homebuyer certification course before applying.

"Homeownership strengthens our communities and can help individuals and families build wealth over time," AJ Barkley, head of neighborhood and community lending at Bank of America, said in a statement. "Our Affordable Community Loan Solution will help more African American and Hispanic families achieve the dream of sustained homeownership."

The Community Affordable Lending 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 for 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 is now 65%, but the rate for African-Americans is well below 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 rates drive up the cost of owning a home, US housing affordability has fallen to its lowest level in 33 years.

For many Americans, especially black borrowers, most of whom earn less than the US median income, homeownership has become increasingly out of reach.

"As the gap in homeownership rates for black and white Americans has widened, it's important to understand the unique challenges minority homebuyers face," said Jessica Lautz, vice president of demographic and behavioral data. of the National Associate of Realtors, in a housing study. to study. "Housing affordability and low inventory have made it even more difficult for all buyers to own a home, but even more so for African Americans."

A major barrier to homeownership for African Americans is lack of credit, as it prevents them from obtaining loan financing.

A study by mortgage market LendingTree found that while mortgages are denied to people of all races, "the proportion of Black homebuyers who had their mortgage applications denied is notably higher than the proportion of the general population". According to the company, the denial rate for black borrowers is double the denial rate for the general population of borrowers.

"Because lenders use credit scores to help determine how likely a borrower is to repay what they owe, those with lower credit scores generally have a harder time getting approved for a mortgage," Jacob Channel, an economist, told Insider. senior of LendingTree. . "Black Americans, unfortunately, tend to have lower credit scores than members of other racial groups, which means 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 home loan process, as historical economic racism often disadvantages people of color.

Bank of America's plan to ditch credit scores and instead focus on rent and car payments could improve approval rates for people of color and ultimately give them a better chance of hitting the jackpot. American dream of owning a home.

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