In years past, some banks have used unethical lending practices and discriminated against people of color. The process of denying mortgages or charging higher interest rates based on race - known as redlining - is illegal under The Fair Housing Act, but reports as recent as 2015 have shown that minorities still have difficulty qualifying for a home loan. The government and certain banks are taking steps to rectify and prevent further discrimination by introducing home loans targeted specifically for minority groups.
Fannie Mae's HomeReady Mortgage
The HomeReady program allows a down payment of three percent and permits 'income pooling' for all members of a household, which means that working relatives can be used to help qualify for a mortgage. This is a very helpful solution for people who live in multi-generational households.
- You must not be an owner of another residential property in the United States
- You must agree to complete an online homeowner counseling course
- Minimum credit score requirement of 620
- Low down payment requirement of three percent
- Cancelable private mortgage insurance (restrictions apply) can save you money over the life of the loan
- Income pooling
- All borrowers do not have to reside in the property (parents of homeowners may become borrowers on the loan even when they don't live there; income limits may apply)
- Non-traditional tradelines, such as utility bills or gym memberships, are permitted to establish credit history (if needed)
Both fixed rate and adjustable mortgages are available through this program. Rates are the same as traditional loans, which are driven by the market.
Most Fannie Mae lenders offer this program. Speak to your loan officer to see if you qualify.
Section 184 Indian Home Loan
In 1992, the Section 184 Indian Home Loan Guarantee Program was enacted by Congress to help Native Americans become homeowners. Section 184 is a residential mortgage product "specifically designed for American Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities."
The Department of Housing and Urban Development (HUD) guarantees Section 184 home mortgage loans, meaning that the lender can be assured that its investment in the mortgage will be repaid in full if the borrower fails to make payments and foreclosure results. Most Native Americans qualify, but loans are limited to single-family houses (1-4 units) and for a maximum term of 30 years. These mortgages are available for new construction, purchase of an existing home, refinancing, or rehabbing. They can be used on or off native lands.
- Low down payment requirement (2.25% down payment is required on loans over $50,000; 1.25% required on smaller loans)
- Credit scores do not factor in interest rates; rates are determined by current market standards
- Only fixed rate mortgages are available, so there is no adjusting of interest rates over time
- Manual (not automated) underwriting and approval allows for more flexibility with qualifications
Find an approved Section 184 lender in your area on HUD.gov.
M&T Get Started Program
M&T Bank's Get Started Mortgage is designed to assist minorities purchase or refinance a home. This mortgage program is only available in certain counties in New York, Maryland, New Jersey, Delaware, Connecticut, Virginia, West Virginia and Washington, DC.
The program is limited to U.S. Census tracts where over half the residents are African-American and/or Hispanic. Maximum income by household size is 80% of area median income to qualify, "unless property is located in a low/moderate income census tract." In that case, there is no income limit.
- Low fixed rates
- Low down payment requirements
- Bi-weekly payments, which save money on interest over time and help build equity more quickly
- Option to buy down the interest rate of the loan
- Financing available for most closing costs, so less out-of-pocket money is required to close
- Gifts from family members allowed to cover closing costs
Search for a loan officer in your area to see if your county offers this program. If not, contact a bank in your local area to find out if a similar program may be available where you are located.
Do Your Due Diligence
As with any financial institution, it is important to research any company that you may be interested in using to obtain a mortgage. Ensure that the lender meets your standards and that they aren't known for discriminating against borrowers. Compare and contrast other loan programs with these minority programs to ensure you're utilizing your best options.