Black potential first-time homebuyers who dream of owning a home often stop at the first step: Saving up for a down payment.
Despite the availability of down payment assistance programs at the city, county and state levels, many homebuyers face systemic challenges, such as low wages, lack of intergenerational wealth and knowledge gaps, which keep them from owning a home.
LaTisha Grant, owner and real estate broker for TAS Realty Group, has observed this several times over the span of her career: hopeful clients entering her office with hesitation.
“The biggest hurdle is where they’re living currently is so unaffordable,” Grants said. “It doesn’t allow for an opportunity for them to save while they’re in the property. Outside of that, many of our clients are not credit-ready.”
Grant advises these clients to enroll in programs that help them increase their credit scores. The other challenge is the debt-to-income (DTI) ratio, which is one’s monthly debt payments divided by their gross monthly income. The ratio helps lenders gauge your ability to manage monthly payments to repay the money you plan to borrow. If that ratio is high, then you won’t be able to get qualified for the down payment assistance. According to Investopedia, lenders prefer a DTI ratio of no more than 36%.
According to the 2024 State of Housing in Black America, Black millennials face hurdles that hinder their homeownership success, unlike their white counterparts. Also, Black millennials face a disadvantage in accumulated financial assets and wealth, crucial for down payments. Those who reached adulthood during the Great Recession experienced high levels of unemployment, which affected Black people more than their white counterparts.
Mindset, money and misconceptions
According to Michael Davis, president of the Houston Black Real Estate Association (HBREA) and CEO/co-founder of Brooks & Davis Real Estate Firm, LLC, the root of the homeownership hurdle is not the down payment itself but a deeper issue of mindset.
“There is a need for a mindset shift. Generations of an entire community [Black] not having access to real estate, a community being told a narrative that it wasn’t worthy to have access and legislation created to deny the community access…,” Davis explained. “What it has done is it created this mindset that you’re not worthy to buy, or you don’t deserve to own.”
One of Davis’ duties as a real estate broker is to convince buyers that homeownership is viable for them. “As a citizen, you should own a piece of the country that you live in,” he tells them.
While several down payment programs exist, Davis advises homebuyers to pay attention to their credit scores and fiscal responsibilities, i.e., managing money and resources effectively and ethically.
The Catch-22 of assistance
Federal, state and local governments offer a wide range of programs, including those from the Texas Department of Housing and Community Affairs (TDHCA), the City of Houston and Harris County.
While some assistance programs are generous, others cap eligibility at specific income thresholds, which means a buyer has to make a certain amount of money to qualify. These caps can create a bind for buyers, said Dr. Courtney Johnson Rose, president of the National Association of Real Estate Brokers (NAREB).
In Houston, the household income should be at or below 80% of the Area Median Income (AMI).
“People who are eligible and make enough money to buy a home in this marketplace, in many cases, don’t qualify for the programs because they make too much money,” Rose explained. “It’s a tough situation because the programs are designed for low to moderate income families to get into homes, but the housing market and the prices have escalated so much that it’s difficult for these families to even afford what’s available on the market.”
This is a paradox many aspiring Black buyers face: they are too wealthy to qualify for help and yet not wealthy enough to buy.
However, if they do, Rose assures them a home is a financial asset that can generate equity, provide a stable environment for children’s learning, accumulate wealth to support Black-owned businesses and pay for sick parents or their children’s college education from home equity loans and use their properties as a monetary leverage in the future.
Are there downsides to these down payment assistance programs?
After qualifying for assistance, the fine print can be intimidating. Grant explained that many of the programs require that you live in a home for five years. Additionally, depending on how much money you receive, it can be up to 20 years that you must own the home before you can sell the property.
“If you’re given $50,000, you have to pay that $50,000 back, but it can just come out of your equity,” she said.
Meanwhile, others carry high interest rates.
“Bond programs come with an elevated interest rate,” Grant explained. “In addition to that, many people don’t look at the long-term ramifications, such as the fact that there is a program that you won’t ever own the land.”
Building Black wealth
Despite the barriers, real estate remains a powerful tool to build intergenerational wealth, something Davis says has been long denied to Black families.
“We hear a lot about the wealth gap in America,” he said. “Coming outta World War II, white Americans could begin purchasing affordable suburban homes, but Black Americans could not do that. And now you’re looking at a half-million-dollar average gap between white and Black families.”
The call to action
Industry experts suggest working with housing professionals who specialize in assistance programs to navigate pitfalls while buying a home.
“Find someone that you trust. Get yourself a real estate professional who is trustworthy in the field and in the area you are looking to purchase,” Grant suggested. “Do not be afraid to seek counseling. Housing counselors are here for a reason and it is their job to direct you.”
She also cautions homebuyers against over-upgrading. “You do not have to put imported tile in a $200,000 home,” she added.
Davis said local governments must rethink how they administer homeownership and assistance programs to dismantle systemic disparities.
“In the City of Houston, on numerous occasions, they have had funds that were earmarked for affordable housing but went back to the federal funding sources because it wasn’t spent,” he added.
