Starting this month people with bad credit may be able to get federally insured mortgages thanks to people getting new loans with good credit. I’m so not making this up!

About 25% of homebuyers of FHA loans are people of color. Generally, the demographic on average has fewer savings for down payments on homes and condos and often have lower credit scores. Newsweek reported that this can be attributed to minorities distrusting the banking system or being first generation Americans and don’t fully comprehend the capitalist system. Data from FinMasters noted that the average credit score in white communities was 727 in 2021 compared to 667 in Hispanic communities and 627 in Black communities.

The idea for this incentive comes at a cost for buyers who have saved money and have good scores, and some believe this program unfairly penalizes Americans who buy with a stable history. Critics charge that rewarding folks with bad credit doesn’t help access to housing, but we should focus on bringing down inflation, cutting energy costs and investing in infrastructure in cities across the nation. I’ve run the numbers and basically this will increase closing costs for good credit buyers by @$40 per month in their mortgage payments. It reminds me of back in 2007 and 2008 when minimum wage workers were being granted huge home loans without any money as a down payment and not great credit. Sadly, many of them lost their homes when the Great Recession hit.

Certainly, people with lower incomes should have an opportunity to own a home-be it a cottage, a condo, or a mobile home. I’m concerned with others that if their credit is bad, they will not be able to make payments because they haven’t learned to make payments on time. The mortgage broker I work with is more than willing to help first time home buyers understand not just the process of getting a home loan but often help repair the potential buyer’s bad credit before applying for a mortgage-at no cost to the borrower. It’s imperative to get ‘pre-approved’ for a loan before making an offer, as protocol is that the letter is submitted to a potential seller so show that the borrower has passed certain loan guidelines to make the offer and should be able to qualify for the loan.

There’s lots of grumbling in the industry about this new program but the basic facts are that 1) inventory is low and 2) affordable housing is extremely hard to find unless you’re willing to commute to the suburbs. And when closing costs for a mortgage are 2-3% of the sales price, an extra $40 shouldn’t break the bank for a first time buyer-especially if the buyer’s broker can negotiate with the seller to help pay some of the buyer’s closing costs.