Buying a home is one of the key ways to build wealth, but it’s a problem when not everyone has the same opportunity due to differing mortgage rates across racial groups. A study by Pew Research using 2015 data, which remains relevant today, shows distinct differences in the rates paid by different racial groups. For example, while 31% of all races secured mortgage rates between 3 and 3.9%, only 25% of Black borrowers received rates this low, whereas 38% of Asian borrowers did. This discrepancy suggests systemic issues still at play in the housing market.
Why do these differences exist? Historically, policies and practices like the Home Owners’ Loan Corporation and the Federal Housing Administration contributed to residential segregation and economic disparities that persist today. Despite legislative efforts like the Fair Housing Act to eliminate discrimination, disparities in mortgage rates by race continue, influenced by historical precedents that have allowed some racial groups to accumulate wealth through homeownership while others were systematically denied the same opportunities.
The Department of Housing and Urban Development (HUD) now requires lenders to collect race data to monitor for discriminatory lending practices. It’s not that banks are outright discriminatory, but historical inequities and ongoing wealth gaps influence the rates different racial groups receive. Today, a person’s financial profile—particularly their income, wealth, and creditworthiness—plays a significant role in determining their mortgage rates.
Improving your chances of getting a better mortgage rate involves understanding and improving your financial metrics. Ensure your debt-to-income ratio is low, your credit score is high, and you have a substantial down payment. Competition among lenders can also work in your favor if you shop around and negotiate.
Despite the complexities of financial systems and their impacts on different racial groups, understanding and improving your personal financial health remains key to securing better mortgage terms, highlighting the importance of financial literacy and proactive financial management for all individuals, regardless of race.
