Homeownership and Mortgage
Improving financial literacy helps overcome barriers to homeownership
Homeownership can provide a path to long-term wealth accumulation. Although the Great Recession caused many people to question the benefits of homeownership, its importance in creating economic and social mobility cannot be overstated. In 2017, the median household net worth of a homeowner in the U.S. was $269,100, compared to only $3,036 for a renter, according to a report from the Census Bureau . In fact, almost half of the homeowners' net worth came from the equity in their own home.
Homeownership rate in Harris County
As of 2018, 55% of occupied housing units in Harris County were owner occupied, compared to 62% statewide and 64% nationally.
- The map on the right shows the homeownership rate in 2018.
- Click on the neighborhood to see the details.
- Click the button below to see the homeownership change from 2010 to 2018.
- Click the button again to see the original map.
From 2010 to 2018, the homeownership rate in Harris County fell from 57.8% to 54.7%, a 5.36% decrease. Across Harris County, unsurprisingly, homeownership increased the most in the suburban areas, while neighborhoods near job centers such as downtown Houston, Uptown and the area near the George Bush Intercontinental Airport have seen a dramatic increase in renters. While homeownership fell for all major racial and ethnic groups, Black homeownership, which was already significantly lower than the other groups, sank by 11%.
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Another important trend to highlight is the declining rate of homeownership among millennials, which fell 17% — from 36.2% to 29.9% — between 2010 and 2018. According to the Millennial Homeownership report by the Urban Institute , millennials in the 25- to 34-year-old age group have a lower rate of homeownership than Generation X or baby boomers did when they were the same age.
Home purchase mortgage 2019
Access to affordable loan products is one of the barriers to homeownership. The credit conditions have been tight for borrowers in recent years. For example, in August 2020, the mean origination FICO score for borrowers in the Houston MSA was 729.
In 2019, 48,655 residential single-family home purchase loans originated in Harris County. Approximately 6.7% of applicants were denied.
The table shows the top reasons for denial. Overall, the "debt-to-income ratio," "credit history," and "credit application incomplete" were the top three reasons. However, there are differences by race/ethnicity. For Black applicants, “credit history” jumps out. In 2019, 20% of Black applicants were denied because of poor credit history. In comparison, only 13% of non-Hispanic white applicants who were denied for the same reason. Though the reasons for denial vary slightly across age groups, the "debt-to-income ratio" was the No.1 reason applicants were denied in all age groups. "Credit application incomplete" was the second most common reason for young applicants ages 25-34 were denied.
The importance of credit history
Mortgage interest rates have a very significant and direct impact on the overall cost of purchasing a home. To achieve the maximum benefits from homeownership, it’s important to understand the role banks and other financial institutions play. Not only do banks approve the loan, they also decide the interest rate for each applicant based on several factors. Credit history is one of the most important indicators determining the mortgage interest rate.
Among all of the borrowers whose loans originated in Harris County in 2019, 38% were non-Hispanic white, 30% were Hispanic and 10% were Black. For the applicants with moderate incomes ($50,000 to $65,000 annually), the average 30-year fixed rate for white applicants was 4.31% in 2019, while Black and Hispanic applicants received higher average rates at 4.59% and 4.51%, respectively. Generally, young applicants ages 25-34 can get a moderate interest rate at 4.45%, which is close to the average rate of 4.46% in Harris County.
Here's an example of how the interest rate impacts a borrower's mortgage and cash flow.
Antonio applied for a 30-year fixed-rate loan to purchase a house priced at $250,000 with a $50,000 down payment. The bank offers Antonio an interest rate of 5.1%, which means Antonio's monthly mortgage payment would be $1,086. If Antonio had a better credit history, which would allow him to get a lower interest rate (for example, 3.1%), he could lower the monthly payment to $854. In other words, Antonio could save $232 every month on the mortgage payment, and ultimately save $83,472 on the total mortgage.
Not only do lenders lower interest rates for those with better credit history, they also have the ability to increase borrowers' debt-to-income (DTI) ratio allowance. For example, Fannie Mae's maximum total DTI ratio is 36% of the borrower's stable monthly income. The maximum can be up to 45%, if the borrower has healthy credit . Given that the DTI is the top denial reason for most mortgage applicants, better credit history may also increase an individual's chances of getting their loan approved.
To get a lower rate and increase affordability, there are several steps one can take before diving into the homebuying process. The Consumer Financial Protection Bureau , the Federal Reserve Bank of Dallas , and the City of Houston offer resources that can help prospective homebuyers understand the role of their credit report, score, and history, and help them achieve even more financial success. For those who prefer a more personal approach, local nonprofits such as United Way THRIVE Center , Avenue CDC , LISC Houston , Bank on Houston and others offer first-time homebuyer classes and financial counseling.
Houston Community Data Connections (HCDC) at the Kinder Institute seeks to facilitate the practical use of data by community leaders for decision-making and capacity building in Houston’s communities. Our well-trained staff members are skilled in data analysis and can provide technical assistance to meet your data needs.
