Hispanics are one of the fastest-growing groups of homeowners in the United States. Yet they still face some special challenges in getting mortgages and becoming homeowners compared to other ethnic groups.
“Overwhelmingly, they want to become homeowners,” says Rick Sharga, executive vice president at Ten-X, an online real estate marketplace based in Irvine, Calif.
Hispanics have accounted for more than half of the U.S. population growth since 2000. In 2016 they accounted for 75 percent of the net growth in overall U.S. homeownership, according to the 2016 State of Hispanic Homeownership Report by the National Association of Hispanic Real Estate Professionals and the Hispanic Wealth Project.
For Cody Schuldt, a recent Hispanic homebuyer in Houston, the difficulties of homeownership became apparent from the sacrifices his parents made so he could go to school and eventually buy a new home after “apartments were all that my family knew.”
“My mother and father worked their entire lives and they worked the entire day,” says Schuldt, president and CEO of Spartan Digital, a web design and social media company. “On a good day, I would probably see them on a Sunday.
“They worked very hard to make sure my siblings and I went through school,” he says. “But now after going through school and having a solid foundation of education, I was able to open up my own business, make enough and buy a new home.”
Schuldt’s parents now live in his home, which is something he prefers. Having room in their home for their parents to live is one consideration Hispanics often have when buying a home, whether for the first time or after years of homeownership.
As more Hispanics enter the housing market, the real estate profession is adapting in many ways. Lenders are working to navigate the difficulties that Hispanics — a term that groups together diverse areas of the world beyond Spain and Mexico — face in learning how home loans work and how their unique circumstances can be addressed.
While it’s not fair to generalize and stereotype an entire community, there are some home buying concerns that that can be commonly faced by Hispanics. They can still be shared by other groups, but can often be top concerns for Hispanic homebuyers. Here are five:
Hispanics are declined for conventional home loans at a rate that’s seven percentage points higher than the national average, according to the NAHREP report. In 2016 Hispanics were denied conventional loans at a rate of 17 percent, and a 15 percent denial rate for FHA loans.
Low credit scores could account for much of that.
Mortgage lenders tightened credit requirements after the housing crisis, putting otherwise credit-worthy borrowers with scores lower than the current average credit score shut out from homeownership no matter what type of mortgage they apply for.
One option is a loan backed by the Federal Housing Administration, or FHA. These types of mortgages don’t look at credit scores but at the overall credit profile. However, the minimum down payment could increase with a poor credit score, and the FHA may not finance a loan for someone with a credit score of 500 or less.
Overall, 27 percent of Hispanic consumers are “credit invisible” or have an unscored credit report that preempts access to mortgage credit financing.
One mistake Hispanic small business owners commonly make is mixing business credit with their personal credit, Sharga says. Putting businesses expenses on a personal credit card instead of a business credit card, and then not being able to pay the personal credit card bill in time because of a business cash-flow problem can hurt a credit score, he says.
Income and down payments
Going hand-in-hand with poor credit are low incomes and less cash for a down payment among many Hispanics. While incomes are rising and poverty levels are declining among Hispanics, it can still be difficult for one or two people in a family to qualify for a loan, so more family members may need to qualify to be on a mortgage, Sharga says.
“The Hispanic community overall isn’t earning as much money to qualify for a loan,” he says.
Seasonal work such as owning a landscaping business that doesn’t do much in the winter in Chicago, for instance, can make showing consistent income difficult, says Keith Bickel, senior vice president for neighborhood landing and mortgage policy at Bank of America in Washington, D.C.
A way around that is to show income over several years, Bickel says. Another is for renters who pay more in rent than what their home mortgage payment would be to show what their debt-to-income is over 12 months, he says.
Lenders are also working to help Hispanics and other minorities overcome the common myth that a 20 percent down payment is needed to buy a home, Bickel says.
Options include FHA mortgages, which require only a down payment of 3.5 percent, though mortgage insurance premiums may be required as an additional fee.
Conforming loans through Fannie Mae or Freddie Mac are another option, requiring a down payment as low as 3 percent for first-time homebuyers. No down payment is required for veterans or military service members getting VA loans, and buyers in rural areas can also apply for USDA mortgages with up to 100 percent financing.
Inter-generational house payments
In some cases, many generations will be living in the that’s being bought, with several people in a family helping to pay the mortgage and other bills each month. Many home loans require that each person contributing to the mortgage prove their income, which can be difficult and increase the risk of providing a loan if one person in the household loses their job.
“Banks haven’t fully cracked the code on such payments,” Bickel says.
Bank of America offers the Affordable Loan Solution program in these cases. Only one person is underwritten for the loan, and only 3 percent down is required, Bickel says.
Borrowers can also have co-signers on their home loan, a common practice for young people buying their first home who need their parents’ help. The parents would have to pay off the loan if the primary borrower defaults, and could have their available credit reduced.
Hispanics will account for 56 percent of new homeownership gains by 2030, according to the Urban Institute. Housing industry professionals, however, aren’t reflective of this growing demographic.
Only 4 percent of mortgage professionals and 7 percent of real estate agents are Hispanic, NAHREP found, with about 25 percent of Hispanic buyers saying they prefer to work with a real estate agent who can assist them in Spanish.
“Access to culturally competent real estate and mortgage professionals who speak Spanish and can recommend appropriate solutions to meet their needs creates a level playing field for prospective Hispanic homeowners,” the report says. “A critical shortage of such real estate and mortgage professionals in several markets puts limits on the number of potential buyers who are entering the market.”
Schuldt, the Houston homebuyer, says he worked with a Spanish real estate agent not just for the common language, but for assistance with cultural nuances.
The agent “was able to tell us if we would be comfortable around the neighborhood,” he says. “For example, local restaurants, jobs available, and areas where we can get true ‘Mexican’ material such as snacks and treats.”
The agent also helped lay out decorating tips for special days such as a Quinceanera in the back yard where a deck and lifted stage area could be built, Schuldt says.
To find a Spanish-speaking real estate agent, the first place to start is to ask your family and friends who have recently bought a house if they have a recommendation. After that, search online or call a real estate company you want to work with and ask for a Spanish-speaking agent.
NAHREP, the Hispanic real estate professionals group, doesn’t have an online database of Hispanic agents, but it lists its top 250 Latino agents in the country for closing a large number of transactions “in an effort to increase the rate of sustainable Hispanic homeownership,” according to their website.