About 11% of mortgage applicants in the U.S. were denied in 2024, according to a recent report by online lending marketplace LendingTree. But for Black applicants, that rate was 19%, with credit history cited as the main reason for loan denial among a third of prospective homebuyers who are Black.
The fact that Black applicants are 1.7 times more likely to be denied a mortgage than the national average presents far-reaching economic challenges, according to Matt Schulz, LendingTree’s chief consumer finance analyst.
“High mortgage denial rates continue to be a big deal for Black Americans because it means that many are not getting access to one of the best wealth-building tools anyone can have,” Schulz stated in a press release. “Homeownership isn’t without its challenges, but it can change lives. Being denied that opportunity isn’t just heartbreaking. It can make getting ahead financially much harder.”
While debt-to-income ratio is the leading reason for mortgage denials across racial groups, accounting for 24.9% of all denials in 2024, Black borrowers had applications denied for that reason at a 33.2% rate, according to LendingTree.
The challenges faced by Black prospective homebuyers was particularly acute in the Michigan cities of Grand Rapids and Detroit last year, which had respective denial rates among Black applicants of 23.9% and 21.3%, per a LendingTree analysis.
“Several factors may contribute to the higher denial rates in Grand Rapids and Detroit, including the effects of historically discriminatory practices, affordability challenges and disparities in credit access and income levels,” the report stated.
A separate report released in March by the National Association of Realtors (NAR) found that 44.7% of Black people in the U.S. owned a home in 2023, which was the most recent year analyzed by the association. That compared to 72.4% of white people, 63.4% of Asians and 51% of Hispanics.
On the brighter side, Black homeownership rose 0.6% year over year in 2023, according to the NAR analysis, which was the largest annual increase for that year among all racial groups.
It’s possible that this week’s announcement by Federal Housing Finance Agency Director Bill Pulte that Fannie Mae and Freddie Mac will begin allowing VantageScore 4.0 for mortgage credit checks may decrease the denial rate for African Americans, as the VantageScore model incorporates rent payment data when it is available in a consumer’s credit file.
In a 2024 interview with Scotsman Guide, Courtney Johnson Rose, president of the National Association of Real Estate Brokers (NAREB), advocated for expansion of credit scoring models when asked how changes to federal policies could improve the Black homeownership rate.
“Using just one type of credit-score model is not necessarily advantageous for Black and brown borrowers,” Rose said. “If you look at the average African American, the VantageScore versus FICO is usually higher because of some of the things that VantageScore uses.”
NAREB’s 2024 State of Housing in Black America report pointed out that in 1970, the difference in homeownership rates between Black and white families was 23.8 percentage points. In 2023, it was almost 28 percentage points.
“This data necessitates a united, multi-sector response that involves public, private and nonprofit entities in implementing practices, policies and regulations that can finally reverse the trend and boost Black homeownership,” the NAREB report stated.
To increase outreach to Black consumers, NAREB held a National Building Black Wealth Day in April, with live events in more than 100 U.S. cities. In a press release promoting the event, NAREB noted that in 2024, more than 2 million “mortgage-ready Black Americans have the income and credit to buy a home but have not yet become homeowners.”
Rose noted in the release that the event aimed to provide Black consumers with data and information on why they should consider homeownership.
“We explain the many benefits of homeownership, such as building wealth, fostering stable communities and accumulating equity for retirement,” Rose said.
