Homeownership is an integral part of the American dream. But for many persons of color, this dream seems to be out of reach. Each year, the overall rate of homeownership for communities of color declines as homeownership in white communities increases.
Not all percentages of homeownership in every metropolitan area have declined at a similar rate. Some areas have higher percentages of minority homeowners.
Metropolitan areas with the widest homeownership gaps:
- Minneapolis (Minnesota) – 50%
- Albany (New York) – 48.8%
- Buffalo (New York) – 44.5%
Metropolitan areas with the smallest homeownership gaps:
- Killeen (Texas) – 14.5%
- Fayetteville (North Carolina) – 17.4%
- Charleston (South Carolina) – 18.1%
While it’s evident that homeownership disparities exist among racial groups, there is still hope. If we educate ourselves about the real estate buying process, we can work toward closing the homeownership gap in the United States.
The First Step to Homeownership is Understanding the Buying Process
Buying a home is an expensive undertaking. In 2021, the average price of homes in the United States is $269,039. This marks a 9.1% increase from 2020. To purchase a home, buyers must have strong credit scores that qualify them for a mortgage or enough cash in the bank to pay for the home in full.
In addition to the sales price, home buyers must make a down payment, pay closing costs and a variety of loan fees. If you’re looking to buy your first home, it’s a good idea to save at least $20,000 to put toward your home purchase.
Most American families (black or white) don’t have tens of thousands of dollars to put down on a new home. For many, just the thought of having to come up with a significant down payment can be intimidating. That’s why most people don’t move past the ‘browsing homes on Zillow’ phase.
You should know that there will be obstacles when buying a home that you will have to overcome. But you can learn strategies to help you achieve your goals. Here is what you should know about buying your first home.
1. Lending guidelines – Every lender has different guidelines when it comes to loan approvals. Lenders usually consider your credit score, income, length of employment, loan-to-value ratio, debt-to-income ratio and monthly expenses. When applying for a mortgage, expect the lender to review your finances carefully. Even if you aren’t looking for a new home yet, explore the lending guidelines for different financial institutions.
2. Mortgage options – Types of mortgages include conventional mortgages, FHA loans, USDA loans and VA loans. Some FHA down payments can be as low as 3.5%. FHA loans are backed by the federal government. USDA loans are offered for home purchases in rural areas. VA loans are available for current military service members and veterans. Typically, VA loans don’t require a down payment. Conventional loans are offered by private mortgage lenders such as credit unions and banks. They are not backed by the federal government. Most require higher down payments than government-backed loans. However, you may be able to secure a conventional loan that is a good fit for first-time home buyers.
3. First-time home buyer assistance programs – Homeownership has a positive impact on local communities. That’s why states and local organizations offer first-time home buyer assistance programs for qualifying residents. Nerdwallet has curated a list of the best homebuying programs by state.
4. Amount of home you can afford – It can take up to 30 years to repay a home loan. When shopping for a mortgage, be sure to get one that you can easily afford. Thirty years is a long time to spend stressed out about monthly house payments. Your debt-to-income ratio should be 36% or less. For example, if you earn $8,333 per month, lenders consider a $2,500 payment an affordable amount. Always review your budget before you put an offer on a new home.
5. Move-in and emergency expenses – In addition to loan costs, you should have more than enough money set aside to pay for other expenses. After all, your other bills won’t stop coming just because you bought a home. These include moving costs, furnishings, home upgrades and repairs.
Regardless of your race and ethnic background, your dream of homeownership can become a reality. All it takes to achieve your goal is effort, knowledge and perseverance. By understanding the home buying process, we can close the real estate gap one home at a time.
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Interested in exploring more information about real estate, finances and buying a home? Explore the following resources.
- Home Buying 101: What They Don’t Teach You in the Classroom by Abduljabar Totonji
- Under Contract: The Guide on Buying a House: Getting Serious About Understanding the Homebuying Process by Alexander Farmer
- First-Time Homebuyer: Master the Art of Credit Repair by Tanisha Jamison
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