A major American bank has launched a new program that allows minority first-time buyers to finance their home purchase with no down payment or closing fees. This is good news for buyers at a time when rising interest rates and declining home inventories are unfavorable.
It’s also the latest response to long-standing criticism that banks favor white borrowers.
bank of america Test Plan It has been deployed in Los Angeles, Dallas, Detroit, and Charlotte, primarily targeting minority neighborhoods in those cities. Offer loans to minority buyers without requiring a down payment, closing costs, or private his mortgage insurance (PMI), which are typical additional costs for a buyer who pays less than 20% of his home purchase price To do.
Importantly, this program also does not require a minimum credit score. Instead, it focuses on a solid track record of rent payments for renters and regular monthly bills such as utility bills and phone bills. Before applying, buyers must complete a homebuyer certification course that advises on ownership liability and other considerations.
But Bank of America (and other large lenders) has been criticized in the past for predatory lending practices, particularly lending to minority groups, so the move quickly sparked mixed reactions online. rice field.
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Financing comes at a critical time for buyers in Bank of America’s test cities.
Rising interest rates make home loans more expensive It also creates downward pressure on lenders to ensure that loans are as risk-averse as possible. Bank of America’s program aims to break through this by freeing eligible applicants from down payments, credit score criteria, and PMI costs.
This reduces many of the barriers to homeownership for buyers in communities battling institutional lending, which often favors white borrowers.
AJ Barkley, Head of Neighborhood and Community Lending at Bank of America, said:
In 2020, the homeownership rate for white households was 72.1%. National Real Estate Association — compared to 51.1% of Hispanic households and 43.4% of Black households.
Black borrowers are also rejected at twice the rate of the overall borrower pool. Recent Reports from LendingTree.
Bank of America’s plan $15 billion program This will provide closing costs and down payment assistance to low-income buyers, and a separate fund aimed at providing $15 billion in mortgages to low- and middle-income buyers by mid-2027. ‘s initiative.
Critics of the program, however, were quick to point out that it could backfire and harm the communities it was designed to help.
The housing crisis of 2008 — This was greatly facilitated by risky loans to unqualified buyers — Taught a hard lesson to stuck lenders in foreclosed homes after buyers stopped paying for properties they could never afford.
The results were devastating.The lender inherits the foreclosed home and the buyer their credit score sink.
At least some of Bank of America’s new program borrowers may be considered “subprime” under normal lending rules. For example, his credit company Experian considers borrowers with credit scores between 580 and 669 to be subprime.
And while credit scores are not always an accurate barometer of a buyer’s purchasing power or ability to make timely payments, proponents believe that the interest rates needed to compensate for the low standards set by lenders are a minority. We are concerned that this may lead to failure of the popular buyers.
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