Zero-Down Mortgages? How Big Banks Are Supporting Homeownership

Bank of America recently announced a trial program that offers zero-down mortgages in minority communities in certain metro areas across the country. This initiative joins a growing number of programs from big banks that seek to narrow the widening gap between white and minority homeownership.

U.S. homeownership rates soared during the pandemic, but most of these gains were not among Black or Hispanic buyers. Historically, white Americans have the highest rate of homeownership at 72.1%, according to a study by the National Association of Realtors. Black and Hispanic homeowners have the lowest rates at 43.4% and 51.1% respectively and have faced discriminatory lending practices.

Hispanic homeownership has risen slightly over a decade, but Black homeownership has decreased, dropping to 40.9% in 2019 from 42.4% in 1960, according to Census data.

Let’s look at programs designed to lessen that difference and what zero-down mortgages offer potential first-time and minority homebuyers.

Zero-Down Mortgage Programs Available in Minority Communities

In recent years, several major banks have been fined or settled lawsuits over unfair and predatory lending practices with minority customers.

Now many financial institutions are seeking to address racial disparities in homeownership through grants, partnerships and other long-term investments in minority communities.

Bank of America

Bank of America’s Community Affordable Loan Solution aims to help first-time homebuyers in minority neighborhoods by removing barriers to homeownership — like having enough cash for a down payment.

Not only can you get a mortgage without a down payment, but there are no closing costs, required minimum credit score or mortgage insurance.

Instead, Bank of America will rely on a track record of on-time payments for rent and utilities and have applicants complete a homebuyer certification course to determine eligibility. Applicants won’t be verified based on race, according to Bank of America.

Using census data, eligible neighborhoods will have a majority African American or Hispanic/Latino population in Charlotte, Dallas, Detroit, Los Angeles and Miami.

Bank of America also announced a grant program in August aimed at supporting disadvantaged small business owners. The program will help people buy commercial property for their small business ventures in opportunity zones in Atlanta, Chicago, Charlotte, Dallas and Los Angeles.

Chase

Chase recently expanded its initiative focused on supporting prospective Black and Hispanic homebuyers through a portfolio of grant and assistance programs.

The homebuyer grant puts $5,000 toward a down payment or closing costs for qualified homebuyers who purchase a home in an underserved or low-income community.

“Owning a home is a key factor to providing family stability and building generational wealth, but out of reach for far too many people, especially Black, Latino and Hispanic households,” Abigail Suarez, head of neighborhood development at JPMorgan Chase, said in a press release.

Wells Fargo

Since 2012, Wells Fargo has offered the NeighborhoodLIFT program that provides potential homeowners in specific communities with up to $20,000 to use toward a down payment or closing costs.

Some homebuyers — such as veterans or service members, teachers, law enforcement and emergency responders — can qualify for up to $22,500.

LIFT loans are interest free and will be forgiven after the borrower lives in the home for five years and completes a HUD home education program. Most LIFT loans are provided through Wells Fargo Foundation funding in partnership with local housing organizations and are only available in select low-income communities.

Wells Fargo also offers a Special Purpose Credit Program that helps minority homeowners refinance their mortgages to lower rates and reduce refinancing costs.

Other Programs Available to Minority Homebuyers

There are several organizations to check out if you’re looking for resources to buy a home and think you might qualify for a minority homebuyer grant.

• The National Association of Real Estate Brokers offers advocacy for Black homeownership, grants for down payments or closing costs, funding for projects, small business lending and assistance with securing credit as part of its Two Million Black Homeowners initiative.

• The Black Homeownership Collective provides support from over 100 organizations and individuals as they seek to create 3 million additional Black homeowners by 2030.

• Many cities and states have local programs that provide similar grants and assistance to minority or first-time homebuyers in low-income areas. Check with HUD for more resources and information or visit Down Payment Resource to assess your eligibility for various programs.

Are There Risks With Zero-Down Payment Mortgages?

No down payment sounds like a sweetheart deal, but there are some drawbacks associated with these loans.

• Home equity: If the housing market slumps, you may end up “underwater,” owing more on your house than it’s worth. Homeowners without built-in equity might have less incentive to keep paying on a home with diminishing value.

• Going too high: Putting first-time buyers in homes they can’t afford could hurt both lenders and homeowners, decimating credit scores and causing foreclosures.

• Interest: Depending on your lender, you may have a higher interest rate and you’ll pay more interest over the life of the loan regardless of the rate.

• Mortgage insurance: You’ll have an additional cost if you have to have mortgage insurance, which is typically required on loans higher than 80% of the home’s value.

Kaz Weida is a senior writer for The Penny Hoarder.