Mortgage Programs for Minorities

Home loan lenders are prohibited from discriminating against minorities when underwriting loans. As a result, there are not a lot of programs specifically for minorities to obtain a mortgage, but there are programs to help lower-income families obtain a mortgage.

The U.S. Department of Housing and Urban Development maintains the Office of Native American Programs. HUD works with communities of Native Americans, Native Hawaiian and Native Alaskan peoples. While ONAP doesn’t write loans specifically, it works with eligible borrowers and community leaders to educate community members about programs including homesteads for which they are eligible. For example, Hawaiian homestead laws allow eligible Native Hawaiians to obtain a parcel of land, but the structure must be financed through a traditional mortgage. Borrowers receive assistance during the process of obtaining the loan, if they need it.

Many large urban cities have inclusionary programs. While they don’t specifically target minorities, the programs open home ownership in areas that might otherwise be out of someone’s income reach. In San Francisco, the Below Market Rate home programs are available for borrowers who meet low- to medium-income guidelines for new homes in developments that are required to designate a certain number of units as “affordable.” Borrowers must meet loan requirements and are expected to have a 10 percent down payment in most cases, but there are secondary junior loans available to assist. These are often lottery units with a city silent lien on the difference in price between the BRM and the market-priced home. The silent loan accrues no interest.

HUD has programs through the Federal Housing Administration that make lending to new homeowners attractive for mortgage companies. FHA loans are insured by the government, which protects lenders against borrower default. This means lenders can lower strict underwriting guidelines for these loans. One of the biggest obstacles for minorities in low-income areas is obtaining the down payment that most loans require. In the FHA loan, as long as borrowers have at least a FICO credit score of 580, they only need 3.5 percent down. Lenders still need to review debt-to-income ratios which should not exceed 31 percent before the mortgage is factored in and 43 percent after.