For Black millennials and single Black women, the path to homeownership is strewn with barriers rooted in outdated financial systems.
According to the State of Housing in Black America report by the National Association of Real Estate Brokers (NAREB), Black female-headed households applying for mortgage credit without a co-borrower are the largest application pool for Black households. Additionally, millennials form the largest Black application demographic. Applications and originations for both groups of Black prospective homebuyers declined in 2023. Moreover, housing affordability and sales declined for the second straight year.
This impacts the group’s potential for wealth accumulation through homeownership.
Outdated credit models overlook real financial responsibility
Dr. Courtney Johnson Rose, president of NAREB, points to traditional credit scoring, which gives car and house loans an advantage and does not take into account rental history, as a key culprit. She added that most lenders still rely on older systems that penalize borrowers without traditional credit lines. As a result, many financially disciplined Black households still struggle to qualify for a mortgage.
“If you’ve never been a homeowner, you don’t have that advantage as part of your credit score,” Rose said. “The current system sometimes puts Black millennials and single Black women, black women at a disadvantage because it does not take into account the good things they are doing with their credit.”
Instead, Rose advocates for alternative models like VantageScore that can help Black individuals by considering rental and utility payments.
Student debt and wage gaps compound the burden
Even beyond credit scores, student debt and persistent income disparities create more hurdles for Black homeownership, per the NAREB report. The demographic is more likely to have higher levels of student debt, have financial challenges after graduation and is the only student loan borrower group to experience an increase in student loan debt.
Referring to NAREB’s findings, Rose said debt-to-income ratios pose more of a challenge to Black women looking to buy a home than the down payment.
“Student loan debt is a huge disadvantage because it’s part of your debt-to-income ratio,” she explained. “They [Black women] are educated professionals, but they had to take out a student loan to get their undergraduate or master’s degree. That debt is carrying them, or they’re the matriarchs of their family…debt for their children’s cars, caring for parents, those responsibilities sometimes fall on Black women and come out in their debt.”
Moreover, African American students typically graduate with, on average, $7,400 more in debt than their white peers, says a study by the UNCF. Also, 80% of students from HBCUs fund their education through federal loans compared to the 55% at non-HBCUs and 25% of students borrow $40,000 or more compared to only 6% of students at non-HBCUs.
“It’s an impediment to them being able to move up and purchase a home,” Rose said. “A Black woman with a master’s degree earns about the same amount as a white man with a high school diploma. She is typically gonna have student loan debt to get that master’s degree, but her income is not gonna go up at the same rate as a white male; that is a disparity.”
The NAREB report highlights that 23% of Black households are behind on student loan payments, compared to 10% of their white counterparts. Regarding debt-to-income ratios, they were the leading cause of loan denials for both demographics in 2023, with Black applicants making up 42% of denials, while White applicants made up 37%.
FHA loans open doors, but at a long-term cost
For many Black borrowers, Federal Housing Administration (FHA) loans have been a lifeline, allowing homeownership with smaller down payments. An FHA loan is a mortgage that is insured by the agency and allows lenders to offer mortgages with lower down payments and more lenient credit score requirements than conventional loans, making homeownership more accessible, especially for first-time buyers or those with credit challenges.
The report shows 41% of loans to Black borrowers in 2023 were FHA-backed, in contrast to 14% for White borrowers, while 42% of Black applicants applied for conventional loans. Rose, however, cautions that FHA loans come with lasting costs.
“To a certain extent, it is a tool that’s being used to open up the door for home ownership for thousands of African Americans,” Rose said. “There are some issues with the program. Although it’s designed to try to help facilitate getting me into a home, which it does, the cost on the backend for the life of the loan is actually more expensive over the years because of the mortgage insurance premium. So it’s a catch-22; it’s not a perfect program. It has facilitated some opportunities for people of color to be able to become homeowners, which is great, but there’s still more work that needs to be done to help that program do more to close the wealth gap.”
What solutions might close the gap?
When asked what Texas lawmakers could do to support Black homeownership, Rose pointed to the need for more affordable housing and an increase in inventory.
“The pricing has gotten ridiculous and unattainable for a lot of people,” she said. “Looking at property taxes in some of these gentrifying areas, some African American people are being pushed out of their homes because of higher taxes. So, how do we protect Black wealth and those homeowners? It’s definitely things that the legislature can do.”
Rose warns the mortgage system will keep Black millennials and single Black women locked in a cycle of paying more or being shut out entirely unless more equitable systems are established.
