Bank of America will offer zero-down-payment mortgages to minorities

Bank of America is launching a new pilot mortgage that would allow first-time homebuyers to buy a home with no money down, no mortgage insurance and that will eliminate all closing costs.

According to Rocket Mortgage, closing costs can make up 3-6% of the loan amount.

The initiative, which is called the Community Affordable Loan Solution, will be open to eligible candidates in Charlotte, North Carolina; Dallas; Detroit; Los Angeles; and Miami. The program will be launched in mainly black and Hispanic neighborhoods and no minimum credit score will be required.

According to the National Association of Realtors, (NAR) as of today, there is close to a 30-percentage-point gap in homeownership between White and Black Americans; for Hispanic buyers, the gap is nearly 20 percent. The NAR also said that the red hot real estate market of late has made it difficult for all potential homebuyers, especially those of color.

“Our Community Affordable Loan Solution will help make the dream of sustained homeownership attainable for more Black and Hispanic families, and it is part of our broader commitment to the communities that we serve,” AJ Barkley, Bank of America’s head of neighborhood and community lending, said in a statement. 

Indiana University finance professor Jun Zhu praised the program for reducing barriers for minority families during an interview with CBS News.

“If you have a program with no down payment and no closing costs, it can help minority families to fill the gap between available savings and upfront cash needed,” said Zhu, an expert on mortgage financing and housing affordability. 

Critics of the policy have drawn parallels to the 2008 housing crisis, which was heavily driven by risky loans to unqualified buyers. This situation left lenders holding a large quantity of foreclosed houses and buyers with significantly reduced credit scores.

It’s probable that a portion of the borrowers under Bank of America’s new program would be considered “subprime” under the ordinary lending rules. Credit agency Experian, for example, deems borrowers with credit scores between 580 and 669 to be subprime.