Study: Black Mortgage Applicants are Denied 84% More Often than White Applicants

Mortgage denial rate for Black applicants is 84 percent higher than for white applicants, according to data from Zillow in 2020, the most year the data was available. This is an increase from 2019 when the denial rate was 74 percent higher.

Are we surprised? No, but it is still frustrating as hell? Yes

According to Zillow, 19. 8 percent of Black applicants were denied a mortgage, which is the highest for all race groups and 9 percentage points higher than white people. The states where rates were the highest were Mississippi (31 percent), Louisiana (26.1 percent), Arkansas (26 percent) and South Carolina (25.8 percent).

Sounds similar to the problem that Airbnb is having with hosts who deny potential Black guests because of how their name sounds.

Overall Black ownership is up at 44 percent, but it is still below the peaks it hit in the early 2000s. The highest being 49.7 percent in 2004.

More from Zillow:

Households of color, as well as renters and lower-income households, were more likely to report encountering housing and economic challenges due to the pandemic. Black households were more likely than white ones to report a job or income loss and difficulty keeping up with mortgage or rent payments. This disproportionate impact of the pandemic on Black households has stalled efforts to close gaps in credit access, homeownership, home values, and mortgage denial rates, making the journey to equity even slower than it already was.

Prior Zillow research shows that Black renters have a larger hurdle to jump when saving for a down payment, mostly stemming from income inequality. Black home purchase applicants in 2020 had a median income of $67,000, compared to an overall median of $83,000 for all applicants. This may help explain why Black mortgage applicants had smaller down payments in 2020 than applicants from other races. Black applicants put down a median of 3.5% on home purchase applications, just barely above the absolute minimum of 3% required for most conventional loans, and less than half the overall median down payment of 8.9% from all applicants.

We already knew that the coronavirus pandemic has disproportionately affected Black people when it comes to health. But this study also sheds light on how the pandemic has disproportionately affected Black people economically.

The study also found that Black applicants purchase less-expensive homes compared to any other race. In 2020, the median property value was $225,000 for Black applicants and $275,000 for all other applicants. Down payments from Black applicants were $16,600 less than the overall median down payment in 2020, according to Zillow.

The research claimed it could take another decade for Black applicants to have the same down payment as all applicants.

Ten years?! That just shows how large the disparity is between Black people and other races when it comes to homeownership. Assuming the proper effort is put in to ensure this gap decreases.

More from Zillow on how insufficient credit affects mortgage denials:

Access to traditional financial services is another source for the large discrepancy in down payments and mortgage access. As in prior years, insufficient credit remained the most common reason for Black mortgage denials in 2020 – more than 6% of Black applicants were denied based on credit history, the cause of more than a third (37%) of all Black mortgage denials. The relative lack of traditional financial services in primarily Black communities (along with primarily Latinx communities) is an important driver of the significant gap in credit history for Black applicants. A higher prevalence of nontraditional services (payday lenders etc) and fewer traditional services (like banks) contributes to poor credit health of entire communities, particularly communities of color.

Bad credit equals a bad ownership rate.

While all of this data may seem negative, there are some positives to take from this study.

According to Zillow, Black-owned homes are increasing in value, in fact 1.5 percentage points more than all home values and is expected to increase at a pace of 0.8 percentage points above all home values by September 2022.

Still, it will also take more than two decades for the value of Black homes to reach the overall median.

More from Zillow:

Part of this problem revolves around disparities in the valuation of homes, including appraisals and property tax rates, which are often unfavorable to homeowners of color and/or largely non-white neighborhoods. Black homes and homes in Black neighborhoods are often appraised at lower values, but tax assessments are higher than they should be. This causes Black homeowners to receive less than they should in sales and pay more than they should in taxes – further deepening the wealth gap.

While there has been progress in Black homeownership in the past few years, there are still many challenges in the way of housing equity. Homeowners have seen a plethora of housing gains during the pandemic, but the growing disparity between Black and white homeownership rates and home values paints the picture of who those winners actually are. While credit borrowers overall are stronger now than ever, the gap in credit access is growing along racial lines. Policies and interventions that target the barriers keeping Black Americans from homeownership are keys to achieving housing equity. Closing the credit and financial access gap is a good way to get more Black renters on the path to homeownership.

We already knew the homeownership gap for Black people was low compared to other demographics in the United States. But what this study showed is that it will take an extreme amount of work and effort to ensure that there is equity among Black homeowners and all other groups.