A Hand Up with a Down Payment

By Sam Kunjukunju

James Truslow Adams, who coined the term “American dream” in 1931, defined the concept as a “better, richer, and happier life for all our citizens of every rank.” Today, the notion is now intricately tied to homeownership as a means of building wealth. Yet, as we celebrate American Housing Month this June, we must recognize that for many Americans, attaining homeownership—and by extension, the American dream—seems all but impossible.

Purchasing a home usually requires a down payment. Prospective buyers must usually provide an initial upfront payment of 20 percent of their home’s purchase price if they want to avoid paying for private mortgage insurance. With median home sale prices up to almost $350,000 according to St. Louis Federal Reserve data, 20 percent would equal nearly 1.4 times the median salary for a full-time American worker. With the median net worth among renters at about $6,300—an amount 40 times less than what homeowners possess, according to the 2020 Federal Reserve Survey of Consumer Finances Report—saving for a down payment is no small feat.

Additionally, there are racial and ethnic disparities that further compound the problem. According to the Federal Reserve, “the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.” Therefore, it’s no surprise that the National Association of Realtors’ recent analysis indicates that the homeownership rate among Black families is nearly 30 percent lower than white families—a gap that the Urban Institute characterizes as wider than in the 1960s.

Recognizing the need to address homeownership disparities, banks have stepped up to help. Based in Rockville, Maryland, Capital Bank hired a community lending manager and established a branch in an underbanked neighborhood within the nation’s capital. Nearly every loan in the branch goes to first-time and low-to-moderate-income home buyers. In providing the loans, the bank prepares borrowers, most of whom are from racial minorities, to apply to down payment assistance programs to receive matching funds, interest-free loans or closing cost assistance.

Additionally, the bank schedules borrowers for first-time home buyer classes. Through its work, Capital Bank aims to address the wealth imbalance in Washington, D.C., where the net worth ratio between whites and Blacks is 81 to 1, according to the Urban Institute. “We see homeownership as a major factor in family stability,” says Lola Pol, the bank’s CLM. “It is our goal and our mission to help as many people as possible achieve this stability.”

Austin Bank, based in Jacksonville, Texas, takes a related but different approach. The bank created AB Community Investment Company, a subsidiary established to assist LMI and credit-constrained people purchase their first homes. Through ABCIC, buyers may receive up to 100 percent financing for home purchases with reduced closing costs. Loan officers make use of alternative credit data, relying on letters from landlords or utility companies to build credit files. The applicant’s debt-to-income ratio must not exceed 43 percent, and purchasers pay a minimum of $500 towards closing costs or a down payment. Applicants also receive homeowner counseling sessions. Over the past 17 years, ABCIC has funded 258 loans in excess of $16 million. The “subsidiary is an avenue to proudly assist deserving East Texas families with homeownership and to help them navigate the mortgage process,” says Russ Gideon, Austin Bank’s president and CEO.

Through such assistance programs, more banks can help more people afford safe and stable homes. Doing so not only enables individuals to access the American Dream, but also cultivates thriving neighborhoods, bridging gaps in communities—which in turn strengthens the economy.

Sam Kunjukunju is senior director of banker community engagement at ABA.