Will Bank of America Zero-Down Payment Mortgage Make it Easier to Buy a Home

Guest Author: Sana Ahmad (Click here for Real Estate Listings)

Bank of America (BoA), recently announced a plan for borrowers in at least 21 citifies that aims to help minorities realize the dream to own their own homes. The plan does not require mortgage insurance or minimum credit score, instead it uses credit guidelines based on factors like rent, utility, phone and auto-insurance payments. The first-time eligible home buyers are also required to complete a home buyer certification program. The plan by BoA is called "The Community Affordable Loan Solution" and for starters will be available in several cities such as in Charlotte, North Carolina, Dallas, Detroit, Los Angeles and Miami.

Since 2017, the homeownership rate for African-Americans is nearly 30% percentage points lower compared to white Americans. According to National Association of Realtors, the US homeownership rate is around 65%, but the rate for African Americans the rate is around 43%. This is despite the Equal Credit Opportunity Act passed in 1974, which prohibits discrimination in the lending process.

According to AJ Barkley, the head of neighborhood and community lending for BoA, "Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families.", he continued, "Homeownership strengthens our communities and can help individuals and families to build wealth over time,".

One of the biggest hurdles to homeownership for African Americans is a lack of credit, because it prevents them from obtaining loan financing. A study by LendingTree found that, "the share of Black homebuyers who have had their mortgage requests denied is notably higher than the share of the overall population.". 

The study identified the rate of denial to be double for African Americans as compared to the overall borrowers. Jacob Channel, the senior economist at LendingTree suggest that, "Because lenders use credit scores to help figure out how likely a borrower will be to repay what they owe, those with lower credit scores generally have a harder time getting approved for a mortgage. Black Americans, unfortunately, tend to have lower credit scores than members of other racial groups do, which means that they often have a harder time getting approved for a mortgage". 

BoA's plan to ditch credit scores and instead focus on rental and auto payments history, could improve approval rates for people for minorities and provide them a better position to realize the dream of homeownership.