The American dream of homeownership is not an equal opportunity ambition.
Black and Hispanic home buyers are more frequently denied mortgages than white buyers—even when their financial pictures are similar, according to a realtor.com® analysis of 2019 mortgage data. When they are able to secure mortgages, Black and Hispanic borrowers are more likely to pay higher fees and interest rates on their loans than white and Asian borrowers.
“What we call it in my community is the ‘Black tax,'” says Donnell Williams. He is president of the National Association of Real Estate Brokers, an organization for Black real estate professionals, and a broker with Destiny Realty in Morristown, NJ.
“Even if we have a college degree, we’re still getting the same treatment as a white high-school dropout,” he says.
Black buyers were twice as likely to be refused mortgages than whites, according to the realtor.com analysis of 7.2 million loan applications in 2019. Only about 5.5% of whites had their loan applications rejected, compared with 6.8% of Asians, 9.3% of Hispanics, 11.7% of Blacks, and 10.8% of multi-minority race individuals hoping to be approved. These denials were only for applicants where all the data was available for fully completed applications that weren’t withdrawn.
Decades of discrimination against people of color have resulted in lower homeownership rates among minorities than among whites in America. And that has a deep, long-term impact on wide swaths of America, since homeownership is traditionally how generations have catapulted themselves into the middle class, as their properties appreciate in value over time.
Nearly three-quarters of whites, 74.5%, owned their homes in the last quarter of 2020, according to a quarterly report from the U.S. Census Bureau. However, just 44.1% of Blacks, 49.1% of Hispanics, and 59.5% of Asians were homeowners in the last three months of the year.
“There are a lot of obstacles that are working against buyers of color,” says Brett Theodos, a senior fellow at Urban Institute, a nonpartisan research group based in Washington, DC.
On top of racial discrimination, “they’re less likely to get help with the down payment from the bank of Mom and Dad,” says Theodos. “They’ve also [often] entered adulthood with higher student loan debt, less inheritance, and are on average in professions that earn lower wages.”
Many of these problems took root generations ago. Whites who served in World War II were offered low-cost mortgages for single-family homes in newly built suburbs when they returned. Blacks and other minorities were often denied access to these loans. In many cases, Blacks, in particular, were explicitly barred from living in white communities through a toxic combination of racial covenants written in deeds and government-supported redlining.
So Blacks who wanted to become homeowners often had to buy homes at inflated prices in less desirable areas. If they were able to get mortgages at all, they typically paid more for them. And homes in these areas haven’t appreciated nearly as much as homes in white areas, except in the places that have seen significant gentrification. As homeownership is used to catapult folks into the middle class and build wealth, that’s left many minorities with less money to pass down to future generations in the form of college tuition assistance or a down payment.
“How can we catch up? How can we be on par? We didn’t have that head start of generational wealth,” laments the National Association of Real Estate Brokers’ Williams. “You want a piece of the American dream, and it’s hard. You feel like your efforts are in vain.”
Realtor.com took a hard look at which races are most likely to be denied mortgages and the reasons provided for those rejections as well as who is paying the most for those loans. To do so, we analyzed 2019 mortgage application data available through the Home Mortgage Disclosure Act. The act, passed in 1975, requires most larger lenders to collect mortgage data and make it public. We looked at only first-lien mortgages on purchases of one- to four-family homes built on site, so manufactured homes wouldn’t be included.
When possible, we compared borrowers with similar financial profiles to see who was getting loans—and who wasn’t. However, our analysis doesn’t take into account certain discrepancies like credit scores.
Blacks most likely to be denied mortgages—even with good-sized down payments
According to our analysis, even aspiring home buyers of color with sizable down payments are more likely to be denied mortgages.
Black borrowers with 10% to 20% to put down were more than twice as likely to be denied than whites offering the same down payments. Lenders rejected 6% of whites and 9% of Asians—compared with 11% of Hispanics and multi-minority race borrowers and 13% of Blacks.
These higher denial rates may be due to minority borrowers having lower credit scores, more debt, or some other financial black mark. But lending experts believe that racial discrimination also plays a part.
For example, a loan officer might tell white borrowers to improve their credit before submitting an application, be more understanding of alternative forms of income, such as a family member contributing or a side gig, or wait until mortgage rates fall a little so their monthly payment is lower. The latter would increase such borrowers’ shot at getting a loan. But a loan officer may not do the same for customers of color.
“Some of it is decisions being made by the lending officers,” says sociology professor Lincoln Quillian of Northwestern University in Evanston, IL. “They have powerful stereotypes of who is likely to repay loans.”
Black and Hispanic borrowers often pay more for their mortgages
Black and Hispanic borrowers were more likely to receive higher mortgage interest rates on their loans—which can add up to big money over time.
About 59% of white borrowers and 52% of Asian borrowers received rates within 1 percentage point of the best (i.e., lowest) possible rate. However, only 51% of multi-minority race borrowers, 47% of Hispanics, and 44% of Blacks fared as well. (It’s unknown whether some of these borrowers pre-paid or bought down their interest rates during the closing process.)
Even the smallest differences in rates can really add up. A single percentage point difference can lead to a larger monthly mortgage payment and tens of thousands of dollars more paid out over the life of a 30-year fixed-rate loan. (The exact difference depends on the purchase price of the home, the exact mortgage rates, and the size of the down payment.)
A recent study found that wealthier Blacks were given higher mortgage rates than low-income whites.
Black households making between $75,000 and $100,000 a year were saddled with a median 4.215% mortgage interest rate in 2019, according to a report from the Joint Center for Housing Studies at Harvard University. However white households earning $30,000 or less had a lower median mortgage rate of 4.16%. The study looked at 2019 U.S. Census Bureau data.
Even Black households raking in $100,000 a year or more paid slightly higher interest rates, 4.169%, than low-income whites. Whites with six-figure incomes had median 3.946% rates—about 22 basis points less than Blacks who were also earning $100,000 or more.
“We have some deep problems in the mortgage market,” Raheem Hanifa, a research analyst at the center who wrote the study.
“Some of the differences in mortgage [costs] is due to differences in who the lenders are. There’s evidence that Black and Hispanic buyers are more likely to be marketed to by lenders who are higher-cost,” says sociology professor Quillian. “White and Asian borrowers are more likely to go to traditional banks.”
Predatory lending and the proliferation of subprime mortgages doled out to communities of color led to the last housing crash, and plunged the world into a financial crisis more than a decade ago. But at least some of today’s pricier lenders may simply be smaller operations that need to charge more since they’re not dealing with the economies of scale of the bigger banks.
People of color more likely to be denied loans due to debt
Minorities are more likely to be denied mortgages due to their debt. Before deciding whether to grant loans, lenders look closely at potential borrowers’ debt loads. Their goal is to make sure borrowers can afford to pay back their credit card, student loan, car, and other payments—on top of a mortgage.
Only 1.6% of potential whites borrowers had their applications rejected because of their debt loads—compared with 2.5% of Asians, 3.1% of Hispanics, and 3.8% of Blacks. About 3.7% of multi-minority race applicants were also rejected.
While that does not sound like that much of a difference, it means that 1 in 64 white applicants is denied versus 1 in 26 Blacks.
Some minority borrowers may simply carry more debt than white borrowers. Many face discrimination in the workplace that can manifest in lower salaries and fewer promotions. Also, they may not receive the same level of financial help from their families when they get into a tough financial spot.
Black households were more than twice as likely to have student loan debt than white households, according to a recent report from the National Association of Realtors®. About 43% of Black households had student debt, at a median $40,000, compared with 21% of whites, at a median $30,000 in student debt. (The report was based on a survey of more than 8,200 home buyers who purchased a primary home from July 2019 to June 2020.)
Employment and credit histories also led to higher mortgage denial rates for minorities
Blacks and Hispanics were also more likely to be denied a loan due to their employment history. One in 568 white applicants was rejected due to their work history, compared with 1 in 282 Blacks.
“People of color, notably Native Americans, Blacks, and Hispanics, face higher rates of discrimination in hiring,” says the Urban Institute’s Theodos. “It can be more difficult to be promoted or advanced.”
That plays a big part in how much they’re earning. In 2019, Asian households had the highest median incomes of $98,174, followed by non-Hispanic white households at $76,057, according to U.S. Census Bureau data. Hispanic households had a median income of $56,113, while Black households brought in the least, at $45,438.
Blacks and Hispanics are also more likely to lose out on a loan due to their credit scores. About 0.6% of Asians and 1% of whites were denied due to their credit histories compared with 1.6% of Hispanics, 2.9% of Blacks, and 2.4% of multi-minority races.
Typically, people build good credit by paying off their student loans, car loans, and credit card bills on time each month. However, many lower-income Americans are less likely to have graduated from college or have credit cards. And what folks do pay every month—their rent, utility, and cellphone payments—often aren’t counted toward credit profiles.
“It’s not just discrimination today that is why we see denials at higher rates for Blacks and Hispanics. It’s the byproduct of generations of systemic racism,” says Theodos. “We have a long way to go in overcoming the deep, historical divide of opportunity for people of color in this country.”