Is the Bank of America Free Mortgage for First-time Homebuyer?

Money Talks

October 5, 2022

Is the Bank of America Free Mortgage for First-time Homebuyer?

Bank of America (BoA) is rolling out with a zero down payment mortgage plan, for the first-time homebuyer, that targets the Black/African and Hispanic/Latinx communities. Here are the Pros and Cons of the program.

Bank of America First-time Homebuyer Community Affordable Loan Solution™

An Option for the First-time Homebuyer?

The Community Affordable Loan Solution™ , from Bank of America will be an addition to their other available mortgage programs that help make homeownership accessible. However, it is in a trial period for select cities (Charlotte, Dallas, Detroit, Los Angeles and Miami).

This program consists of:

First-time homebuyers
zero down payment and low to no closing costs
no minimum credit score

Racial First-time Homeownership Gap

Why is BoA doing this? Well they are joining other financial institutions in making credit programs that will help underserved and less privileged communities.

According to the 2021 US Census Bureau , the rates of homeownership among the white population was at 72% while hispanic was at 52% and the black population was at 43%. The racial homeownership gap contributes to the overall racial wealth gap.

First-Home buyer Homeownership rates by race. — US Census Bureau 2021

The Community Affordable Loan Solution™ is a Special Purpose Credit Program which encourages financial institutions to create special credit programs by utilizing other avenues. BoA will use timely payments of rent, bills and other factors to determine risk versus a credit score. The Black and Hispanic communities typically have low to no credit and therefore lag behind in homeownership.

First-time homebuyer Community Affordable Loan Solution™ Pros & Cons

The Pros

A requirement for the program is for the potential buyer to complete a homebuyer certification course before purchasing. The course will go over the home buying process. This can be a great way to educate these communities, in which, financial literacy tends to be low.

Similarly, the lack of knowledge on how credit works adds a huge barrier, as well. A small mistake leaves a huge impact on their credit score, or may not have a credit score, which makes many loans inaccessible. The good news is that BoA’s program will instead use bill payment history for eligibility, which is great news as building/correcting a credit score can take years.

The Cons

The most apparent con, besides only available in select cities, is the restriction of purchasing in select neighborhoods. In order to qualify, the home being purchased must be in neighborhoods where the population is predominately Black/African or Hispanic/Latinx. These communities tend to build equity at a slower rate, which will make building wealth slower.

Similarly, homes are at their highest at the moment. In addition, zero downpayment and closing costs, along with a higher interest rate, can put the buyer at risk of defaulting if they aren’t careful. This means that if you plan to use this program, you should plan to stay in the home for at about 10 years or more. This will allow for equity to build up enough.

Another con is that the program is not specifically for Black or Hispanic buyers. The target communities may not even meet the income requirement or may not even know about the program. Therefore, BoA should be proactive in promoting and making the information available to these communities. Otherwise, this can open the door for gentrification.

Final Thoughts

It is important to remember that this program is just one of many out there whose goal is to help make homeownership accessible. This program is geared towards the low income with no/low credit score. For them, this may be the only way to own a home.

This program is not a permanent solution, rather it is meant to get your foot in the door. Once the homebuyer has built enough credit or equity, they should look for another mortgage option to switch to.

Finally, this may not be a perfect program but it may be the only option available to many and gives the community a chance to own their own neighborhoods.