Despite the United States’ slow recovery from the housing crisis, black homeownership remains impacted by fewer black Americans owning homes. Less than 41% of black Americans are homeowners compared to 73% for white Americans.
There are many factors that contribute to this significant gap—from systematic racism impacting housing policies to income disparities. People of color are still navigating through long-standing disadvantages impacting their ability to purchase a home.
Unable to afford the rising costs of homeownership within their own communities, homes that were once staple fixtures and symbols of the American dream have become the grounds of urban development.
Regardless of the inequalities that exist in the housing industry, becoming a black homeowner is still important, necessary, and attainable.
Why is Black homeownership so important?
Becoming a black homeowner is more than just owning a home. It is laying a foundation for building generational wealth and family & financial security.
Homeownership helps build generational wealth
The difficulties of early black Americans to purchase land and homes in the United States still have a crippling effect on the ability to leave a legacy to future generations.
The ability to build generational wealth is contingent upon passing down assets. Without the ability to do so, each generation carries the responsibility of acquiring enough wealth to leave to their descendants. Passing down a home is just one way that black families can begin to build wealth.
Owning a home provides financial options
The most basic definition of wealth is the accumulation of assets. A home is an asset that can be used as a vehicle for building wealth and increasing your net worth. Single black women, in particular, are among the lowest when it comes to net worth. One way to close this gap is by investing in real estate.
Consider your home as your first investment. You can build equity in your home, which gives you more financial options. With the sale of a home, the equity can be used to pay off debt, increase your savings, invest, or even buy a new home of greater value.
Choosing to keep your home and letting it appreciate in value is also a means of increasing your net worth. If used correctly and managed responsibly, a home can be one of the greatest assets in wealth accumulation.
Homes provide safety and community
Homeownership not only provides a foundation for wealth building but also for families. A home is a safe space in which families can grow and is the cornerstone of communities. Owning a home brings a sense of pride and accomplishment that is meant to be enjoyed with loved ones.
Why homeownership in the Black community is disproportionately lower
Systematic racism within government policies & real estate practices, lack of financial education, debt, and lack of capital are all factors that contribute to the disproportionately lower rate of black homeownership.
Government housing policies impacting the ability of blacks to purchase homes
Housing discrimination is a practice that impedes the ability to rent or buy housing, get a mortgage, or do other housing-related activities based on race, religion, sex, and other identifying factors. Government-approved policies, like the National Housing Act of 1934, made way for unfair practices such as redlining.
Redlining, also known as mortgage discrimination, gave lenders the ability to deny mortgage loans to people living in areas densely populated by African Americans.
The Fair Housing Act was passed in 1968 to make such practices illegal. However, despite efforts to undo years of discrimination in the housing market, the effects of these practices still exist.
Another form of homebuyer discrimination is the disparities in interest rates. A recent study shows that minorities are charged more in interest for their mortgage.
This finding is coupled with the fact that African Americans are also more likely to be denied a loan. A study by Lending Tree shows that black people have a denial rate of 17.4% versus 7.9% for whites.
Additionally, the lack of information about incentive programs continues to put black families at a disadvantage when it comes to acquiring lending.
Disproportionate debt load within the black community
As if inequitable laws and practices aren’t enough, black people also carry a larger debt burden than other ethnic groups, specifically with student loan debt. While 60% of all students take out loans to pay for higher education, that number is nearly 78% for African Americans.
Debt directly affects the ability to purchase a home. Too much debt could mean that you are declined for a mortgage due to the risk of default. As a result, home buying is less of a priority and possibility. Additionally, wage gaps for minorities and women also impede one’s ability to pay off debt.
Lack of access to capital for a downpayment
According to the Pew Research Center, the median black family’s income is about $43,000. This is $28,000 less than the median income for white families. This income is often not enough to even cover monthly expenses.
More families are living paycheck to paycheck, unable to even save for emergencies. One study found that 69% of Americans have less than $1,000 in savings. The result is the inability to find additional income to save for the downpayment of a home.
What Black families can do to attain homeownership
Though much work continues to be done to bring about equality in the housing industry, there are things that you can do to make owning a home possible.
1. Focus on getting financial education
First, focus on financial education. This includes learning how to budget your income and create a plan to save, reduce debt, and invest. If you’re not sure where to begin, start with our Clever Girl Finance Roadmap. You can also take advantage of our completely free personal finance courses.
2. Work to reduce debt
Debt impacts your ability to purchase and maintain a home. So before purchasing a home, work to reduce your debt.
Lenders evaluate your debt-to income ratio to determine your ability to make your monthly payments. Too much debt in comparison to your income would reduce your likelihood of getting approved for a loan. Consider these debt reduction strategies for attacking your debt.
3. Begin to prioritize savings (not just for a down payment)
Having money saved for emergencies and retirement is necessary for financial stability. This should be prioritized before thinking about saving for a down payment. Secure your financial future first.
Saving on a tight budget can be difficult, but there’s no harm in starting small. Those small contributions eventually add up. Once you’ve saved for emergencies and put money toward your retirement, start saving up for a down payment.
4. Improve your credit
Credit plays a significant role in being able to get a home loan. Improving your credit will help increase your chances of getting approved for a loan at a lower interest rate.
There are several factors that impact your credit score. This includes your credit utilization, payment history, credit history length, debt mix, and the number of hard inquiries.
It is important to know how credit works and how each of these factors impacts your credit score. Regularly monitor your credit and take the necessary steps to improve your score.
Are you ready to become a homeowner?
Homeownership is certainly something that is still attainable for black families in the United States. Owning a home provides a legacy to future generations and helps build the foundation for generational wealth.
If it is your desire to own a home, don’t let the statistics scare you. With the proper education and tools, you can navigate the world of homebuying with ease. If you're ready to purchase your first home, check out our free first-time home buyers course!