Buying a home isn’t easy or cheap, but for Black Americans, obtaining mortgages and buying homes has typically been especially difficult.

Black Americans continue to experience a gap in homeownership due to redlining, which is the illegal practice of denying mortgages to people, usually people of color, from certain neighborhoods. 

While 74% of non-Hispanic white Americans owned a home as of the fourth quarter of 2019, 44% of Black Americans owned a home during the same quarter. That compares to 48% percent of Hispanic Americans who owned a home and 58% of Asian, Native, Hawaiian, and Pacific Islander Americans. The rate of homeownership was lower among Black Americans than any other racial group, according to the Census Bureau.   

(More than 65% of Americans owned a home as of 2019.) 

The gap in homeownership between white Americans and Black Americans is even wider than it was in 1960, when denying mortgages, or payment plans to own homes, to people based on skin color was still legal. While there is a 30% gap in homeownership today, there was a 27% gap in homeownership in 1960, according to The Urban Institute. 

This gap has persisted and even grown despite the passage of The Fair Housing Act in 1968, which made redlining illegal. The act outlawed denying the renting, financing, or selling of a home to someone on the basis of race, religion, sex, national origin, handicap, and family status. Similarly, the Equal Credit Opportunity Act was passed in 1974 and made it illegal for creditors to discriminate against applicants. 

What is redlining?

Redlining reportedly started during the Great Depression, when the Home Owners Loan Corporation (HOLC) was founded to bail out homeowners by buying and refinancing mortgages. The HOLC would outline areas it thought to be high-risk and would often deny buying out mortgages from those areas. The practice was discriminatory because often the outlined “high-risk” areas were in inner-cities with a high population of Black Americans and people of color. 

Redlining was further enforced by the Federal Housing Administration (FHA), which was founded in 1934. The FHA provided mortgage insurance to lenders but wouldn’t back mortgages in redlined neighborhoods. The FHA also insured construction loans for builders, but only insured those loans if the builders promised not to sell homes to Black Americans, according to Forbes. 

Although redlining was banned with the passage of the Fair Housing Act, the repercussions of redlining still exist. 

Countering the effects of redlining

By making it more difficult for Black Americans to purchase homes, redlining set Black Americans back in gaining access to a source of wealth for many Americans, according to NPR. 

The history of redlining could contribute to the persistent wealth gap, or the historical disparity in average household income, between white Americans and Black Americans. The median household income for white households in 2019 was $72,204, about 37% more than the median household income for Black households of $45,438.

The geographic effects of redlining have been lasting. Black homeowners are four times more likely to live in a formerly redlined neighborhood than a neighborhood outside of those lines. Meanwhile, in 48 cities, Black Americans are still turned away more often than white Americans when they try to obtain a mortgage, according to the Center for Investigative Reporting.

Good to know: Groups such as the National Association of Real Estate Brokers, a group founded in 1947 by African American real estate agents, are working to increase the rate of homeownership among Black Americans over the course of the next several years.

What should prospective homebuyers know?

Unless you’ve got cash on hand to cover the full cost of the home you want to buy, you’ll need a mortgage to finance the purchase of a home. So, it’s important to be armed with the historical context of mortgages and homeownership if you think you’re ready to purchase a house. 

Assuming you don’t plan to purchase a house with cash outright, you can usually expect to pay around 20% of the purchase price of a house as a down payment to receive a mortgage. Then you’ll typically have to pay off the mortgage in regular, monthly payments. 

When you’re setting up a budget for your home purchase, remember that purchasing a house can also come with unexpected expenses such as homeowner’s insurance and upkeep. 

If you want to save towards a down payment for a house, make that savings part of your budget. You might also consider automating your savings with Auto-Stash to help achieve your savings objective. 

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