Bank Of America Home Loans No Pmi

Bank of America just launched a zero-down-payment mortgage in 21 cities that could make it much cheaper and easier to buy a home

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Imagine getting approved for a mortgage on your dream home without having to make a down payment, pay closing costs, or have a minimum credit score.

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That could become a reality for borrowers in 21 cities after Bank of America announced a new mortgage plan that aims to close the racial homeownership gap by offering eligible first-time homebuyers of all races affordable home loans.

The Community Affordable Loan Solution will be available in appointed markets, including in historically Black and Hispanic neighborhoods located in Charlotte, North Carolina; Dallas; Detroit; Los Angeles; and Miami. The plan requires no mortgage insurance or minimum credit score and instead uses credit guidelines based on factors like rent, utility, phone, and auto-insurance payments. To qualify, borrowers must complete a homebuyer certification course prior to application.

Homeownership strengthens our communities and can help individuals and families to build wealth over time, AJ Barkley, the head of neighborhood and community lending for Bank of America, said in a statement. Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families.

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The Community Affordable Loan Solution is a measure of the Equal Credit Opportunity Act passed by Congress in 1974 to prohibit discrimination in the lending process. However, since 2017, the homeownership rate for Black Americans has been nearly 30 percentage points lower than that of white Americans. Although the US homeownership rate soared in 2020, data shows the gap is widening. According to the National Association of Realtors, the US homeownership rate now stands at 65%, but the rate for Black Americans lags significantly behind at 43%. For white Americans the rate is 72%, and for Hispanic and Asian Americans the rate remains above 50%.

For many Americans, especially Black borrowers — the majority of whom earn less than the US median income — homeownership has grown further out of reach.

As the gap in homeownership rates for Black and White Americans has widened, it is important to understand the unique challenges that minority home buyers face, Jessica Lautz, the National Associate of Realtors vice president of demographics and behavioral insights, said in a housing study. Housing affordability and low inventory has made it even more challenging for all buyers to enter into homeownership, but even more so for Black Americans.

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A study conducted by the mortgage marketplace LendingTree found that while mortgages are denied for people of all races, the share of Black homebuyers who have had their mortgage requests denied is notably higher than the share of the overall population. According to the company, the denial rate for Black borrowers is double the denial rate for the overall borrower population.

Because lenders use credit scores to help figure out how likely a borrower will be to repay what they owe, those with lower credit scores generally have a harder time getting approved for a mortgage, Jacob Channel, the senior economist at LendingTree, told Insider. Black Americans, unfortunately, tend to have lower credit scores than members of other racial groups do, which means that they often have a harder time getting approved for a mortgage

In recent years, Americans and housing experts have called for different alternatives to credit scoring in the mortgage-lending process, as historical economic racism often puts people of color at a disadvantage.

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Bank of America's plan to ditch credit scores and instead focus on rental and auto payments could improve approval rates for people of color — and ultimately give them a better shot at the American dream of homeownership.A pedestrian walks past Bank of America ATMs in San Francisco on Jan. 23, 2020.Alex Tai / LightRocket via Getty Images file

Bank of America said it is now offering first-time homebuyers in a select group of cities zero down payment, zero closing cost mortgages to help grow homeownership among Black and Hispanic/Latino communities.

The option will first become available in certain neighborhoods in Charlotte,  Dallas,  Detroit,  Los Angeles and Miami. The new mortgage, called the Community Affordable Loan Solution, aims to help eligible individuals and families obtain an affordable loan to purchase a home, the bank said.  

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“Homeownership strengthens our communities and can help individuals and families to build wealth over time, ” AJ Barkley, head of neighborhood and community lending for Bank of America, said in a release. “Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families, and it is part of our broader commitment to the communities that we serve.”

The loans require no mortgage insurance — the additional fee typically charged to buyers who put down less than 20% of the purchase price — and no minimum credit score. Instead, eligibility will be based on factors like timely rent payments and on-time utility bill, phone and auto insurance payments. Prospective buyers must also complete a homebuyer certification course provided by Bank of America and federally approved housing counseling partners before they apply for the loan program, the bank said.

The racial gap in homeownership rates in the U.S. remained substantial in 2020, the most recent year for which National Association of Realtors data are available.

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For white households, the homeownership rate was 72.1%. That compares with 51.1% for Hispanic households and 43.4% for Black households. The Black homeownership rate was lower in 2020 than it was in 2010, the NAR said.

During the pandemic, rising home prices and low housing supply have disproportionally impacted Black households more than any other race/ethnic group, the NAR said in a report. White households are now 40% more likely to be able to afford to buy a home compared with Black households, the association said.

Bank of America and other major financial institutions like Wells Fargo have checkered histories when it comes to mortgage lending to people of color and prospective buyers who have disabilities.

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Bank of America's Countrywide Financial, a subprime lender it purchased in 2008, was fined $335 million in 2011 over claims that it charged Black and Hispanic homebuyers higher interest rates than white applicants.

In 2012, Wells Fargo agreed to pay $175 million to settle claims that it targeted people of color with risky home loans that were more expensive. And the city of Miami sued JPMorgan Chase in 2014, accusing the bank of predatory lending in communities of color.

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