To succeed in business, we often hear that the important thing is who you know, not what you know. Though I take that with a pinch of salt, I wonder if it makes sense, especially for a first-time homebuyer coming from a minority community, given the degree of real estate discrimination that still exists.
What Is Real Estate Discrimination?
Despite legislation, such as the Fair Housing Act, which has been in effect for more than 50 years and protects people of color from discriminatory practices, African Americans and Latinos are routinely denied standard mortgage loans at higher rates than white Americans.
Modern-day redlining — the routine denial of conventional mortgage loans to people of color — is still going on in some major cities, as a study by the nonprofit investigative journalism outlet Reveal found.
Discrimination in Real Estate Lending
Add to this the discrimination faced by minorities when it comes to lending. Both have contributed to the growing gap between white homeowners and homeowners of color.
When it comes to mortgage loans, real estate discrimination can vary from outright denial to being offered loans with rates that are disproportionately higher than those for your white counterparts. Sometimes this behavior is enabled by complicit financial institutions — for example, Wells Fargo was sued for discrimination against mortgage borrowers of color over the course of 14 years.
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A shockingly small 42.7 percent of black people owned a home in the third quarter of 2019, compared with 73.4 percent of non-Hispanic white citizens, according to the latest U.S. Census Bureau report.
And the Federal Reserve’s latest Survey of Consumer Finances found that homeowners have substantially higher net worth as a result of the forced savings — or building equity — that occur in the process of paying down your mortgage. So the more homes people of color own and make monthly payments toward, the higher their net worth.
Not to mention the generation-spanning ways in which property ownership can help a family accumulate assets. About 69 percent of a household’s net worth comes from the equity earned from paying off their mortgage, according to the U.S. Census Bureau. These barriers to homeownership can make it more difficult for families of color to build important intergenerational wealth.
- An easier journey from renting to buying: Fannie Mae supports black and Hispanic homebuyers with no credit score by using nontraditional credit data from potential homebuyers, like their rent payments or utility bills.
- Protect and invest in black neighborhoods: We must take action to reduce the systemic low housing value of homes in predominantly black neighborhoods. By improving conditions in these places, there will be more incentives for investment and targeted policy action.
- Keep current homeowners in their homes: State and local governments should consider reforming policies on tax foreclosure and land contracts, as well as allowing payment plan options and abatement programs. Reach out to your local government to see what you can do to make this a reality.
How I Prepared to Buy a Home
When I bought my first home, I didn’t realize that I had stumbled upon a recipe for financial success. It has since increased my net worth and left me with a very positive attitude toward the idea of homeownership. But when I began looking into buying my first home, I knew that I wanted to find the best home for the least amount of money, and in the best location that I could afford.
To start, I spent a lot of time reading about mortgages and home buying, thinking about the responsibility, where I wanted to buy, and whether I planned to live in my town for at least the next five years after my purchase. I did.
I made sure that I was well aware of all aspects of buying a home. This included commissions, mortgage rates, inspections, status, market price — the list goes on. After all, if a home purchase is well thought out, it can lead to a much better financial outcome.
As I worked with my agent, it was important for me to be listened to and treated with respect. It quickly became clear that the real estate agent I was working with would do that for me. I was lucky enough to find the right person to take me through all the steps. That said, not everybody is so fortunate.
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Taking Advantage of Available Resources
“Make sure you have a great real estate agent in your corner,” says Kendra Barnes, founder of The Key Resource, a real estate investment literacy platform. “If you feel like something fishy is going on, let your real estate agent know. They’ve probably been through enough home-buying transactions that they can offer some feedback about the situation.”
In the hands of the wrong agent, you’ll find yourself in an overpriced home with a loan that has too many clauses built in against you. So check around to zero in on that person who has integrity and who respects you.
Whether or not you find such a person, the best way to protect your interests is to be your own resource. I remember spending a lot of time reading about homeowners' insurance, mortgages, fixed vs. adjustable rates, and the long-term importance of having real estate as part of your overall financial strategy.
Basic Advice for the Prospective Homeowner
There are many online real estate companies, such as Zillow, Redfin, and Trulia, that help people understand how the home-buying process actually works. And online loan companies can help you find and compare potential mortgage rates.
Being an educated consumer will help you recognize when somebody is steering you in the wrong direction.
And be honest about what you can afford. You may have the nicest real estate agent who advocates for you, but that agent is ultimately in the business to make money. You have to become your own advocate during your home-purchasing process.
Ask Questions and Trust Your Gut
“Do not be afraid to ask questions. The loan process can be extremely intimidating, especially for first-time buyers, which causes buyers to avoid asking what they think might be a ‘dumb question,’” Barnes says. “If you don’t understand the terminology — or a fee, or any documentation — ask! If you don’t like the way that something was handled, ask to speak to a manager.”
Always be ready to walk away from any offer that you feel, in your gut, is not a good one.
Don’t rush the home-buying process. Be patient. There will always be other homes up for sale. Remove emotion from the process so that you can make a financial decision based on a sound evaluation.
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Read Everything (and Keep an Eye Out for Real Estate Discrimination)
“You will have to look at and read hundreds of pages during this process, but it is worth it,” Barnes advises.
“These documents you are signing are serious, and I can’t tell you the number of times I’ve caught an error that could have cost me in the long run,” Barnes adds. “Make sure that the numbers and terms that you were quoted are accurately displayed throughout the documents, and if they aren’t — again — ask questions.”
As a woman of color, I cannot stress this message enough. After all, I don’t want to see another generation of color falling victim to real estate discrimination or the promise of easy homeownership.
Additional reporting by Jazmin Rosa and Connor Beckett McInerney.