By CHUCK GREEN
Bank of America is launching the Community Affordable Loan Solution, a zero-down payment, zero-closing cost mortgage designed to expand sustainable homeownership opportunities in Black and Hispanic communities.
The Community Affordable Loan Solution is a Special Purpose Credit Program that uses credit guidelines based on factors such rent payments, utility bills, phone, and auto insurance payments. It requires no mortgage insurance or minimum credit score.
Individual eligibility is based on income and home location, according to a press release.
This adds to the company’s existing $15 billion Community Homeownership Commitment.
Through this commitment, Bank of America has helped more than 36,000 people and families become homeowners, providing more than $9.5 billion in low down payment loans, and over $350 million in non-repayable down payment and/or closing cost grants.
To date, two-thirds of the loans and grants made through the Community Homeownership Commitment have helped multicultural clients to achieve homeownership, according to the press release.
“Homeownership strengthens our communities and can help individuals and families to build wealth over time,” said AJ Barkley, 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, and it is part of our broader commitment to the communities that we serve.”
A BOA spokesperson told The Mortgage Note anyone from any race or ethnicity is eligible to apply for this mortgage.
The spokesperson explained Bank of America was motivated to develop the program based on some fairly daunting realities faced by some these days.
“This program aims to address the unique challenges and needs that minority homebuyers face.”
That said, the spokesperson emphasized eligibility for the loan is based primarily on income and home location.
As 2020 wound down, Black homeownership was at only 43.4%, according to cnn.com as provided by the National Association of Realtors.
This falls short of the rate from 10 years prior.
The NAR also indicated that homeownership among Hispanics parachuted to 51.1% — a record.
That said, both rates remain well south of the rate of While homeownership, 72.1%.
Money for a down payment can be a difficult burden for many potential buyers.
A down payment can be a tough nut to crack, Dan Stone, founder of Dan the Man for Mortgages, explained to The Mortgage Note.
“Professionals are working, earning a great income, but haven’t saved for the down payment and want to purchase a home. Some can and do,” Stone said.
These programs can be helpful to potential buyers, Stone said.
Bank of America is not alone in offering zero-down mortgage offerings.
Carlos Miramontez, senior vice president of Orange County’s Credit Union told The Mortgage Note their program is also available to all consumers, regardless of race or ethnicity.
”Additionally, it’s not limited to first-time homebuyers. An existing or previous homeowner can apply for our Zero and low-down payment home loans. Our credit union doesn’t limit the use of this program to low and or moderate-income borrowers and there’s no maximum income limitation for our home loan programs,” Miramontez said.
Miramontez said the credit union initiated a zero down offering because “one of the largest barriers for prospective homebuyers to realize the dream of homeownership is saving for a down payment for a home.”
Before the credit union began offering Zero and 3% down payment home loans they encountered members who seeking a home and had good credit and employment and were paying high housing rents.
“The only thing keeping them from owning a home was they lacked tens of thousands of dollars in their bank account for a 5% or greater down payment,” Miramontez said.
For example, a home with a sales price of $500,000 — which is less than the median-priced home in many areas of Southern California — a consumer would need a minimum of $25,000 or 5% for a down payment, he noted.
“It’s important to know that this figure does not include funds required for closing and escrow or impound costs. While members wait to save for these large down payments, the price of homes continues to raise, we refer to this as the cost of waiting,” Miramontez said.
In 2020, Kansas City-based North American Savings Bank initiated a Zero-Down Mortgage Program but discontinued it, Matt Allen, vice president of Portfolio Lending explained to The Mortgage Note.
Allen said the decision stemmed from the fact that “NASB consistently evaluates our mortgage offerings in relation to the market to ensure that our programs make the best financial sense for our customers and the business.”
However, that doesn’t mean the bank didn’t recognize what zero downs brought to the table. Saving for a down payment on a home can be challenging for some people and zero down home loans allow them to become homeowners sooner, Allen said.
“Zero down home loans are popular for a few reasons, but the main benefit is that saving for a down payment can be a challenge, especially for folks who are still paying off their student debt,” Allen said. “The recent student debt relief plan, however, may give millions of potential borrowers the opportunity to save for a down payment and lessen this challenge.”
Zero down isn’t without obstacles.
Allen said buyers putting less than 20% down on a conventional mortgage could be required to pay monthly private mortgage insurance, which can raise their monthly payment amount
Zero down home loans can potentially have higher interest rates than other loans that require a down payment, he added.
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