A head of consumer lending explains how to navigate the homeownership gap
The dream of owning a home is one that has been embedded in the minds of all Americans. But for some, the quest the live and achieve the “American Dream” can be a bit more daunting.
Despite making notable gains in homeownership, African-Americans still face declining rates. In fact, those rates are now below their 1970 level, according to data compiled by the Urban Institute.
Well just how bad is it? Why is the homeownership rate for Black households—41.7 percent—near a 50-year low, according to the U.S. Census Bureau. EBONY spoke with Steve Boland, Bank of America’s head of consumer lending. In this interview Boland details some of the unique obstacles that stand in the way of African-American homeownership and how we can overcome what appears to be a growing trend in Blacks lagging in economic prosperity.
Recent reports are showing shocking homeownership rates for African-Americans compared to our White counterparts by nearly 50 percent. Wow. What is going on?
Steve Boland: Lack of information about homeownership remains an obstacle. Managing personal finances, loans and mortgages isn’t something we learn in school, regardless of socioeconomic background. A recent report by Better Money Habits actually found that Americans wish they learned more about money management in school. Only 31 percent of high school and 41 percent of college graduates say their education did a good job teaching good financial habits. It really all starts with a solid base of financial knowledge. Homebuyer education and counseling are the cornerstones to successfully expanding sustainable homeownership for all Americans.
One of the misconceptions I often come across is that people start the homebuying process too late. When is the best time to buy a home?
Steve Boland: That’s true. Many people do wish they had started the homebuying process earlier. In fact, we just released our second Bank of America Homebuyer Insights Report and it has some really interesting findings. When looking back at their homebuying experience, 60 percent of current owners across generations would tell their younger selves to start saving sooner. For most people, buying as early as possible and building equity sooner is a positive move, but the best time to buy is different for everyone and is dependent on their very individual personal and financial circumstances.
What’s needed to become a homeowner in America?
Steve Boland: Buying a home is a big decision—one of the biggest many will make in their lives. It’s important to anticipate the impact on your finances, making sure your monthly payments are sustainable for today and down the road. Also, ask yourself how saving for and buying a home aligns with your other long-term financial objectives. While buying a home can involve some tough choices, it’s both financially and emotionally rewarding. Our new data shows us that millennials who have bought homes are confident they made the right decision, with 79 percent reporting that homeownership has had a positive impact on their long-term financial picture.
What tips do you have for first-time homebuyers?
Steve Boland: Improving economic conditions help increase consumer confidence, which has the potential to drive more first-time homebuyers to buy. Here are some things for first-time homebuyers to consider:
Don’t assume it’s less expensive to rent than own your own home. According to Zillow’s Breakeven Horizon, a combination of home value growth and low mortgage interest rates combined with rising rents is enabling homebuyers to break even on a home purchase in less than two years in the U.S., compared to renting the same home. Owning a home also offers the chance to increase personal wealth as you pay down the principal on a loan and build equity.
Ask more questions about down payments. Many new homebuyers self-select out of homeownership by assuming they won’t qualify for a mortgage, or that they need to put at least 20 percent down. Others simply don’t know where to start. Buyers may be able to qualify for loan options that require as little as three percent down. Another great alternative is to find out if you qualify for federal, state or local down payment and closing cost assistance programs. There are online tools that give prospective homebuyers access to a searchable database of more than 1,300 down payment and closing cost assistance programs across the country.
Don’t ask, “How much could I borrow?” ask, “How much should I borrow?” Rather than focusing on the largest loan amount you could get from a mortgage, this approach focuses on the amount that comfortably fits a buyer’s personal budget. First-time buyers should calculate a monthly payment that they can comfortably afford. Making sure you can meet your home payments now and into the future, especially in the case there are unexpected maintenance costs, is critical to successful homeownership.
Buy what you can afford now. A lot of first-time buyers say they want to wait and save more money so they can skip the starter home and move straight into their dream home. However, by waiting, they are missing out on their chance to start building wealth and equity, not to mention they’re paying someone else’s mortgage with their current rent payments. Millennials who have decided to own are buying the house they can afford now and looking at their dream home as something that will come in the future. In fact, according to the Homebuyer Insights Report, a large majority (68 percent) of millennial homeowners say their current home is a “stepping stone” to their forever home.
And finally, sell us a home. If you had someone who was skeptical about owning instead of renting, what would you say to them?
Steve Boland: Beyond the numbers and what makes sense on paper, there is the purely emotional aspect of owning a home. Nearly all homeowners we surveyed said they are proud of owning (95 percent) and treasure the memories they have made (91 percent). At the beginning of my career, when I was a young banking center manager, I realized there is nothing better than the reaction you get when you tell people they are able to own their own home. I feel the same way today! Even though I’ve spent more than 25 years on the lending side of banking, that feeling never grows old.
View Bank of America’s 2017 Homebuyers Report
here.
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