A helping hand with a down payment


By Sam Kunjukunju

James Truslow Adams, who coined the term “American Dream” in 1931, defined the concept as “a better, richer and happier life for all of our citizens of all ranks”. Today, the notion is now closely linked to property as a means of creating wealth. Yet, as we celebrate American Housing Month in June, we must recognize that for many Americans, homeownership – and by extension, the American dream – seems anything but impossible.

Buying a home usually requires a down payment. Prospective buyers are typically required to provide an upfront payment of 20% of the purchase price of their home if they are to avoid paying for private mortgage insurance. With median selling prices going up to nearly $ 350,000 according to data from the St. Louis Federal Reserve, 20% would be nearly 1.4 times the median salary of a full-time American worker. With a median net worth among renters of around $ 6,300 – an amount 40 times less than what landlords own, according to the 2020 Federal Reserve Survey of Consumer Finances report – saving for a down payment n is no small feat.

In addition, there are racial and ethnic disparities which further compound the problem. According to the Federal Reserve, “the typical white family has eight times the wealth of the typical black family and five times the wealth of the typical Hispanic family.” Therefore, it is not surprising that recent analysis by the National Association of Realtors indicates that the homeownership rate among black families is almost 30% lower than that of white families, a gap that the Urban Institute qualifies as broader than in the 1960s.

Recognizing the need to address disparities in home ownership, banks have stepped up to help. Based in Rockville, Maryland, Capital Bank hired a community loan manager and established a branch in an under-banked neighborhood in the nation’s capital. Almost all of the branch’s loans are for first-time home buyers and low to moderate income home buyers. By making the loans, the bank prepares borrowers, most of whom are racial minorities, to apply for down payment assistance programs to receive matching funds, interest-free loans, or closing cost assistance.

In addition, the bank programs borrowers for courses for first-time homebuyers. Through its work, Capital Bank aims to address the wealth imbalance in Washington, DC, where the white-to-black net worth ratio is 81 to 1, according to the Urban Institute. “We see homeownership as a major factor in family stability,” says Lola Pol, CLM of the bank. “It is our goal and our mission to help as many people as possible achieve this stability.”

Austin Bank, based in Jacksonville, Texas, takes a similar but different approach. The bank created AB Community Investment Company, a subsidiary established to help LMI people and those with shortage of credit buy their first home. Through ABCIC, buyers can receive up to 100% financing for the purchase of a home with reduced closing costs. Loan officers use alternative credit data, relying on letters from landlords or utility companies to build credit records. The applicant’s debt-to-income ratio should not exceed 43%, and buyers pay a minimum of $ 500 for closing costs or a down payment. Applicants also receive owner counseling sessions. Over the past 17 years, ABCIC has funded 258 loans over $ 16 million. The “Affiliate is a way to proudly help deserving East Texas families access homeownership and help them navigate the mortgage process,” said Russ Gideon, president and CEO of ‘Austin Bank.

With such assistance programs, more banks can help more people find safe and stable housing. This not only enables individuals to access the American dream, but also cultivates prosperous neighborhoods, bridging the gaps in communities, which in turn strengthens the economy.

Sam Kunjukunju is Senior Director of Banker Community Engagement at ABA.


About Matthew R. Dailey

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