Without a credit rating and a down payment: Bank of America launched an affordable mortgage program

Imagine being approved for a mortgage on your dream home without having to make a down payment or have a specific credit score. That could become a reality for borrowers in 21 cities after Bank of America announced a new mortgage plan to close the racial homeownership gap. Affordable mortgages are now offered to eligible homebuyers of all races. The edition told in more detail Business Insider.

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These mortgages will be available in certain markets, including historically black and Hispanic neighborhoods located in Charlotte, North Carolina, Dallas, Texas, Detroit, Michigan, Los Angeles, California, and Miami, Florida.

You don't need mortgage insurance or a minimum credit score to make a decision. The bank will use data on factors such as rent, utilities, phone bills and car insurance. To qualify for a loan, borrowers must complete a Home Buyer Certification course prior to applying.

See if there is a participating home in your area and apply at link.

“Homeownership strengthens our communities and can help individuals and families increase their wealth over time,” said A. J. Barkley, head of Neighborhood and Community Lending, Bank of America. “Affordable mortgages will help make the dream of permanent home ownership a reality for more Black and Hispanic families.”

The decision to provide affordable credit to the community is a measure of the Equal Credit Opportunity Act passed by Congress in 1974 to prohibit discrimination in the lending process.

However, since 2017, home ownership rates for black Americans have been nearly 30% lower than for white Americans.

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While the U.S. homeownership share has risen sharply in 2020, the data shows the gap is widening. According to the National Association of Realtors, the share of homeowners in the United States is currently 65%, but the share of black Americans is far behind - only 43%. For white Americans, the figure is 72%, while for Hispanics and Asian Americans it is around 50%.

Eliminate 3 major barriers to homeownership

As inflation and rising interest rates drive up the cost of homeownership, US housing affordability has fallen to a 33-year low.

For many Americans, especially black borrowers who earn less than the median income in the US, home ownership has become even more out of reach.

“The home ownership gap between black and white Americans has widened, and it's important to understand the unique challenges that minority homebuyers face,” said Jessica Lautz, vice president of demographic and behavioral research at NAR. “Housing affordability and low income levels have made it even more difficult to buy a home, especially for black Americans.”

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A huge barrier to homeownership for black Americans is the lack of a credit score, which prevents them from getting approved for a mortgage.

A study by mortgage marketplace LendingTree found that while mortgages are denied to people of all races, "the proportion of blacks who have been denied mortgages is markedly higher." According to the company, the rejection rate for black borrowers is double the rejection rate for the general population.

“Because lenders use a credit score to determine how likely a borrower is to pay off their debt, those with lower credit scores tend to have a harder time getting mortgage approval,” said Jacob Channell, senior economist at Lending Tree. “Unfortunately, black Americans tend to have lower credit scores than other racial groups, which means they often have a harder time getting mortgage approval.”

In recent years, Americans and homebuilding experts have called for various alternatives to the credit score in the mortgage lending process, as historical economic racism often puts non-whites at a disadvantage.

Bank of America's plan to ditch credit ratings and instead focus on rent and auto payments could boost approval rates and ultimately give them a better shot at the American dream of homeownership.

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