To help level the homebuying field, it is crucial to understand the qualifications for loan approval well in advance.
One of the great milestones in life is purchasing your first home. It is the culmination of hard work, dedicated saving, and planning. Unfortunately, for some, specifically African Americans, the process isn’t as easy as it is for others.
“Black Americans have fewer resources today and greater financial burdens than white Americans as a legacy of exclusion and discrimination in the housing market and in most facets of American life,” explains Bryan Greene, Vice President of Policy Advocacy at the National Association of Realtors. “As a consequence, disadvantage compounds disadvantage, while advantage begets more advantage.”
The stats bear this out. According to 2022 The Double Trouble of the Housing Market report, the home ownership rate for whites has hovered around 70% since 2017. For African Americans, the rate is about 40%.
This is not a new concept. Historically, “African-Americans were excluded from neighborhoods by mob violence, official government policies, and by formal and informal real estate and lending practices,” adds Greene. And in the places “where African-Americans were offered opportunities, they received worse terms and were subject to worse conditions and other exploitation.”
There are places today, however, that are generally more amenable to Black homeownership, including several places in Ohio (Akron, Youngstown, Toledo, and Dayton), McAllen, TX, Baltimore MD, Memphis, TN, Birmingham, AL, Detroit MI, and St. Louis, MO. According to the report, “Black households can afford to buy homes roughly in proportion to their income distribution.”
Daryl Fairweather, Ph.D., chief economist for Redfin, also offers up the city of Atlanta—according to Redfin data San Antonia, TX, Columbus, OH, Louisville, KY are also among the most-affordable metro areas for African Americans— noting the large, college-educated Black middle class as well as the number of HBCUs, which she says puts Blacks in a good position to become homeowners. Fairweather also says that, of course, the overall supply of affordable housing for sale also plays a role.
To help level the homebuying field, it’s all about familiarizing yourself with the qualifications for loan approval and homebuying well in advance, says Greene. Here our experts offer tips to help you just that so you can score your first home.
Get Your Financial House in Order
“Purchasing a home is one of the biggest financial commitments a person will make in their lifetime,” Snigdha Kumar, Personal Finance Expert and Head of Product Operations at Digit explains. “And, with inflation and mortgage rates continuing to increase, it’s that much more important to organize your expenses, create a budget and build up a comfortable nest egg before becoming a homeowner.” That nest egg will also help you in the future, as ownership comes with unexpected expenses – from a leaky roof to a broken AC and much more,” says Kumar, noting that you should plan for is a sizeable emergency fund with at least 3-6 months of expenses, or for a more aspirational goal aim to save for 12 months. Also, according to Fairweather, from the mortgage side, expect to have your credit score (In 2021 only 25% of borrowers had credit scores below 729) and your bank statements examined as well as your current job to verify whether or not you have a steady source of income. If any of these aren’t up to par, the journey to homeownership may just be a bit more difficult she says.
Recruit a Reliable Real Estate Agent
They key word here is reliable. You want someone who has your best interest at heart and who can and is willing to answer your questions, including those related to resources for first time buyers (think homebuying counselors.) If your agent doesn’t know these answers or doesn’t want to answer these questions, Fairweather says that is a sign that you should get a new agent. Other red flags: “If your real estate agent is making untrue assumptions about you, that's a sign that you should go to another agent. If they assume that you aren’t qualified to purchase a certain priced home, but you are, than that is a sign you should not look at that agent [because] they probably have some kind of unconscious bias. Or, if they’re steering you towards certain neighborhoods because they think they you as a buyer desire one neighborhood over another just based on the way you look, that's definitely another red flag,” says Fairweather. “You want an agent who really listens and who wants to learn about you, not one that just makes assumptions about you.”
View the Home When the Seller isn’t There
Let’s keep it real, race can, unfortunately, play a factor. Fairweather remembers back to her youth when her parents were trying to buy a home in the 1980s. “[My dad] didn't even go on home tours, he sent my white mom is his place because he knew homeowners wouldn't want him buying in their neighborhood.” So, she says, if you are looking to buy into an area where discrimination does play a big factor, you may want to conceal your identity a bit. “You can ask to see the home at a time when the seller isn't there, so the seller actually never sees you, and when the offer comes in they only see a name,” she advises. “You could go so far as to set up a trust or an LLC so that the homeowner doesn’t see your name.”
Get a Preapproved Loan
Before you ever make an offer on a home, you can go through a preapproval process for a mortgage, where the bank will check your credit and look at your income history and give you a rate (FYI: One perk of good credit is a lower rate) and price range of homes you can afford. So, in the future when you do make an offer, the seller knows that you are a strong applicant. Fairweather says this process, if you have all of your paperwork ready, only takes about a day or two and she recommends you begin down this route as soon as you begin touring homes. Tiffany Powell, Real Estate Broker Compass Atlanta, also advises working with a lender who will not only pre-approve you, but will pre-underwrite your loan. “This final loan approval makes a buyer’s offer much stronger because there is no need for a finance contingency.” Last, Greene suggests consumers shop around to find competitive terms and wait until they can qualify for a loan on good terms.
Have Cash On Hand to Cover the Appraisal Gap
According to Powell, in a tight market, sellers are looking for offers from buyers who are willing to forgo the appraisal contingency, which is the difference between the fair market value determined by the appraiser and the amount you agreed to pay for the home. Translation: “If the appraisal comes in lower than the contract price, the buyer is willing to cover the difference in cash,” says Powell.
Be Prepared to Move Quickly
Given the current housing shortage, when a home fits the majority of your needs, don’t hesitate. If a seller receives a handful of comparable offers, they may defer to the one they received first, says Powell. And if at first you don’t success, try, try again, as the saying goes. “This market can be tough, and you may have to submit offers on more than one home in order to win,” says Powell, but don’t give up. “Remember, that the house that is meant for you, ultimately, will be.”