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Up to $50,000 in debt for qualifying homebuyers who plan to buy a Habitat for Humanity home may be paid off, thanks to a newly launched program of Habitat for Humanity Seattle-King & Kittitas Counties. The limited assistance, intended to help anyone who meets certain criteria, is focused on helping Black families become homeowners.
“Debt-to-income ratio is one of the key reasons Black households are denied [mortgages],” said Jung Hyun Choi, a senior research associate at the Urban Institute who has studied the homeownership gap. He believes helping people pay off debts is “the right path to reduce the gap” between white and Black homeownership rates.
A LendingTree study based on data from the Home Mortgage Disclosure Act (HMDA) found that Black borrowers in many of the nation’s largest metropolitan areas are much more likely to be saddled with high-cost loans than other races and ethnicities.
In fact, in all 50 of the metros in the study, Black homebuyers are more likely to receive high-cost purchase loans than the overall population, with an average spread of 8.99%. Seattle was among 10 metros with the smallest spread between overall high-cost refinance loan share and high-cost refinance loan share for Black homeowners.
Officials with the local Habitat organization say they have earmarked $250,000 to fund a pilot program, which is believed to be the first of its kind. They anticipate helping five to 10 families with debt remediation this year by clearing or reducing old debts that may be hindering their ability to get a mortgage.
Although narrow in reach, advocates say Habitat’s program illustrates the type of support that is needed to begin to close the worsening gap between white and Black homeownership rates. Census data from 2019 indicate only 31% of Black households own their homes, far fewer than the 68% of white households.
Applicants of the new program will be chosen in part based on their source of debt, such as student loans, medical bills, or back child support. Recipients will be eligible for the debt relief after finishing half their “sweat equity,” which requires buyers to perform construction or other work for Habitat, and once they’ve started working with a counselor on budgeting.
“You can have all the down-payment assistance in the world, but if you can’t qualify because your debt is so high … you’re just not going to be able to buy a home,” said Ali Sheibani, Habitat’s director of homeowner services.
Habitat’s local organization serves people who make less than 80% of area median income (AMI), or $85,000 for a family of three in King County. It is part of a global nonprofit housing organization working in local communities in all 50 states and approximately 70 countries.