Over the past year, the Des Moines community has engaged in important conversations about racial inequity, highlighting homeownership disparities for Black people caused, in part, by unfair policies and practices. Recently, a Des Moines Register story featured statistics showing that Black applicants in Des Moines are more than two times as likely to be denied for a mortgage than their white peers.
I am disappointed in these scores, and I agree systemic challenges to homeownership for Black people need to be addressed. However, I also believe the article missed an opportunity to discuss the importance of education and shared responsibility throughout the homebuying process.
As a Black man who has spent over 20 years in the financial industry, including real estate and banking, and more importantly as a homeowner, I have experienced the homebuying process from all perspectives. In my belief, all three parties — Realtor, buyer, lender — are responsible for some aspect of financial education, and we can all do more to support homebuyers, especially those who are Black, Indigenous and People of Color (BIPOC).
Let me break this down using an analogy: buying a home is like playing basketball. You must put in some work before you’ll be ready to play to your potential. You’ll need to learn the basic skills, rules and strategies of the game.
Learning the skills
The home-buying process should start a couple of years before you are ready to buy. You need to understand your full financial picture by knowing your income, regular expenses, your debt position, how to decrease outstanding debts, mid- and long-term expenses, and your credit health, to name a few. Think of these as your financial skills.
Learning the rules
Many people don’t understand what goes into making a loan, or the “rules” of the game, yet it’s important information for homebuyers to understand. For example, know the difference between a pre-qualification (good indication) and pre-approval (definitive) and what each includes. Financial institutions have an obligation to help customers understand key terms in any loan process, especially for those as significant as mortgages.
The Register’s story provided examples that clearly showed this need for more education, not only on what information the borrower would need to provide, but also when and why. What concerns me is how the example was labeled as disparate treatment. Taking the example in the article, where there is a significant difference in the credit score when it’s time to make the loan compared to the one listed in a pre-approval, and the loan’s interest rate changes because of it or because of higher rates after pre-approval expiry, this is not disparate treatment. These changes would impact any borrower regardless of race. Issues like this can often be mitigated by proper education about the mortgage underwriting process.
In addition, Realtors often serve as trusted advisers to homebuyers and are involved throughout the whole process. Because of this and the Realtor’s common role as a liaison between a customer and their lender, they too need to understand all parts of the loan process and contribute to educating their clients about the basic rules.
Ready to play
In basketball, if you go on the court unprepared, the referees or other players won’t change the rules of the game because you don’t understand them. A shared understanding of rules provides order, fairness and improves the likelihood of your best possible outcome.
Let me be clear: People’s lives are not a game. I’ve spent my career working with people of all walks of life — just starting out, living paycheck to paycheck, middle class and beyond. One thing we all have in common is someone had to teach us how to properly handle our finances before we were prepared for homeownership and its ongoing financial responsibility. We all must first learn the financial skills and, hopefully, continue learning strategies to manage or build wealth.
Shockingly, sometimes even banking and real estate professionals need to build knowledge in these areas. It’s so worth it. Every client I’ve worked with who took a proactive approach, built their financial knowledge and followed through on their obligations has been able to achieve homeownership.
It’s worth noting financial institutions want to make successful loans, which is why so much information is required in the loan application. But it’s one thing to buy a home; continuing to manage your finances appropriately is a big part of keeping it. So, when it comes to financial education, especially in the mortgage process. I believe financial institutions have an opportunity and responsibility to do more for their customers.
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I’d love to see more financial institutions take on a greater commitment to education, whether on budgeting, credit scores, mortgages, or any other related topic. I made a commitment to ensure I would do everything possible to help BIPOC and all people realize their financial dreams. It’s why I choose to work for a community bank that does the same.
In closing, disparities certainly exist in homeownership among Black people and there’s a lot of work to be done. Iowa communities are positioned to be better and become the example of national change. It starts with a full-court press and weaving financial education into each step of the homebuying process, thus supporting a homebuyer’s best opportunity for long-term wealth-building success.
D’Angelo Johnson is vice president and private banking regional manager at Bankers Trust and can be reached at firstname.lastname@example.org.
This article originally appeared on Des Moines Register: Opinion: Full-court press needed to educate homebuyers