Reducing Racial Homeownership Gaps: How Down Payment Assistance Can Help
Equal access to safe, high-quality housing is a civil right—and yet the legacy of systemic racism and housing discrimination has held communities of color back from accessing equal housing opportunities.
Today, the gap between Black families who own their home compared to white families continues to widen. The rate of Black homeownership has declined to levels comparable—if not worse—than the years prior to the passage of the Fair Housing Act in 1968, when race-based discrimination was legal.
The State of Homeownership for Black and Brown Families
Becoming a homeowner requires savings and financial stability. One of the largest challenges for historically marginalized communities is a lack of capital for down payment costs and related housing maintenance costs.
Black and Hispanic families tend to lack the accumulated wealth to make a substantial down payment: The median white household has $111,146 in wealth holdings, for example, compared to just $7,113 for the median Black household and $8,348 for the median Latino household.
We’re also in the midst of a daunting housing supply shortage, which means families are forced to pay more for housing—and homeownership remains out of reach for most low- and middle-income households.
Other barriers to housing include mortgage market discrimination. In 2021, Black Americans were 2.5 more likely to be rejected for a home loan compared to white borrowers, and Black Americans were 3 times more likely than white Americans to tap into their 401(k) or pension funds as a source of liquidity for their down payment. Relying on a retirement or investment fund as a down payment has a negative impact on future wealth and liquidity, setting families back for years.
Can Down Payment Assistance Help?
For several decades, the U.S. has experimented with different ways of providing down payment assistance to cash-constrained first-time homebuyers.
Most recently, the Down Payment Toward Equity Act, proposed in 2021, would provide up to $25,000 in down payment assistance for first-generation homebuyers. A recent study from the Joint Center for Housing Studies found that this $25,000 in assistance would be enough to cover the required minimum 3.5 percent down payment on a home priced at 80 percent of the median home price in every state except Hawaii.
This has monumental implications: With such assistance, homeownership could be a possibility for 1.1 million income-ready Black and Hispanic renter households within the ideal first-time homebuying ages of 25–55. If each of these 700,000 Black and 400,000 Hispanic households were to purchase a home, it would have a remarkable impact on the homeownership gap: Black and Hispanic homeownership rates nationwide would rise by 8 percentage points and by 3.2 percentage points, respectively.
While this is still only a partial reduction in the decades-old racial homeownership gap, this research highlights the potential of down payment intervention to make a notable impact on the lives of millions of Americans.
Down Payment Assistance in Action
While federal legislation is still pending, many states have taken matters into their own hands and attempted to tackle the racial homeownership gap. For more than 50 years, state and local housing finance agencies have financed more than 3 million single-family mortgages for low-income first-time homebuyers.
In Texas, the Dallas Homebuyer Assistance Program (DHAP) provides up to $50,000 in down payment and closing costs assistance and offers homeownership counseling services as a precursor. The program offers down payment assistance to Dallas residents who have lived in the city for at least ten years and have a household income between 50% and 120% of the area median income.
In Wisconsin, the Milwaukee Home Down Payment Assistance program provides grants of up to $5,000 for first-time homebuyers. The city also offers a Strong Homes Loan Program, which offers loans of up to $25,000 to property owners for emergency and essential home repairs.
Looking to the Future
Closing the racial wealth and homeownership gaps requires a comprehensive, all-hands-on-deck approach. No sole initiative will single-handedly change the landscape of homeownership in the U.S., however, prioritizing more funding for down payment assistance will have a tremendous impact.
And while down payment assistance is critical, it is useless without access to a greater number of high-quality for-sale homes. Without addressing the housing shortage, down payment assistance does very little for Americans looking to purchase a home for the first time. This is precisely why new tools are necessary to expand the proliferation of affordable for-sale homes—and why the New Markets Tax Credit (NMTC) program remains one of the best options for many communities to access financing to build new homes.
About Smith NMTC Associates
Smith NMTC Associates works with mission-driven organizations nationwide to develop creative financial models and structures for projects that bring affordable homeownership and community facilities and services to low-income communities and their residents.
In 2008, Smith NMTC pioneered the first NMTC model to support affordable homeownership and deployed $25 million in NMTC funding to five nonprofit developers in the GO Zone. Since then, the company has deployed more than $620M to 139 homeownership projects in collaboration with 23 CDEs, resulting in 5,500 homes in low-income communities across 32 states and the District of Columbia.