Diverse group climbing mortgage documents to a house.

Unlocking Homeownership: Are Systemic Barriers Still Impacting Mortgage Access?

Rhea Morgan in Business & Economy August 2025 • 4 min read.

"New research reveals how racial and ethnic disparities persist in mortgage lending, even with improved creditworthiness factors."

For many, owning a home is a crucial part of achieving financial security and building wealth. However, disparities in access to affordable mortgages can create significant barriers, leading to unequal homeownership rates across different racial and ethnic groups. These inequities not only affect individual families but also have broader societal consequences, impacting wealth accumulation and intergenerational mobility.

Recent research sheds light on the current state of racial and ethnic differences in mortgage application outcomes. By analyzing individual application data reported to U.S. regulators, the study examines disparities in approval rates and loan pricing, while also considering factors like credit score, debt-to-income ratio, and loan-to-value ratio. This comprehensive approach provides a detailed view of the challenges faced by minority borrowers in the mortgage market.

While the study doesn't aim to prove discrimination or illegal practices, it seeks to describe the broader landscape of disparities in mortgage access and prices. These gaps can arise from various factors, including discrimination, structural inequalities in lending practices, and differences in borrower behavior. Understanding these disparities is essential for creating a more equitable housing market and ensuring that everyone has a fair chance to achieve the dream of homeownership.

What Do the Numbers Reveal About Mortgage Disparities?

Diverse group climbing mortgage documents to a house.

The research uncovers significant disparities in mortgage approval and pricing between racial and ethnic groups. Unconditional disparities, which don't account for creditworthiness factors, show substantial differences in outcomes. However, even after considering key elements of observable borrower creditworthiness, these disparities persist, although they are smaller.

Several factors contribute to these disparities. One key aspect is the difference in credit scores among racial and ethnic groups. The study reveals that Black, Samoan, Guamanian/Chamorro, Puerto Rican, and Cuban applicants experience the highest denial rates, while non-Hispanic White and Japanese applicants have the lowest. These disparities highlight the challenges faced by minority borrowers in building and maintaining strong credit profiles.

Credit Score: A key factor in mortgage approval, with lower scores leading to higher denial rates.
Loan-to-Value (LTV) Ratio: Indicates the size of the down payment, with higher LTV ratios potentially increasing denial rates.
Debt-to-Income (DTI) Ratio: Reflects income and total debt payments, with higher DTI ratios posing challenges for approval.

The study also finds that even when applicants have similar credit scores, disparities in loan-to-value (LTV) and debt-to-income (DTI) ratios exist across racial and ethnic groups. Black applicants, in particular, tend to have higher LTV ratios, even with high credit scores. This may reflect the racial wealth gap, where borrowers with less wealth rely on financing for a greater portion of the purchase price.

Moving Towards a More Equitable Mortgage Market

While this research doesn't directly address discrimination, it does highlight the ongoing barriers that minority borrowers face in accessing and affording mortgages. Factors such as credit score, income, and down payment requirements contribute significantly to these disparities. However, other systemic barriers also play a role, requiring further investigation and targeted policy interventions. By understanding the complexities of these disparities, we can work towards creating a more equitable mortgage market that provides opportunities for all.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2405.00895,

Title: Racial And Ethnic Disparities In Mortgage Lending: New Evidence From Expanded Hmda Data

Subject: econ.gn q-fin.ec

Authors: Sean Lewis-Faupel, Nicholas Tenev

Published: 01-05-2024

Everything You Need To Know

What are the key factors that influence mortgage approval, and how do they contribute to disparities in access?

Several factors influence mortgage approval, including Credit Score, Loan-to-Value (LTV) Ratio, and Debt-to-Income (DTI) Ratio. The study reveals that Credit Score is a crucial element; lower scores often lead to higher denial rates. Loan-to-Value (LTV) Ratio, which indicates the down payment size, and Debt-to-Income (DTI) Ratio, reflecting income and debt payments, also play significant roles. Disparities arise when these factors differ across racial and ethnic groups. For example, Black applicants often have higher LTV ratios, reflecting wealth gaps, while disparities in credit scores among groups like Black, Samoan, Guamanian/Chamorro, Puerto Rican, and Cuban applicants, compared to non-Hispanic White and Japanese applicants, contribute to unequal approval rates.

How does the study analyze mortgage application data to identify disparities in lending practices?

The research analyzes individual application data reported to U.S. regulators. This includes examining disparities in approval rates and loan pricing. The study takes into account various Creditworthiness factors such as Credit Score, Debt-to-Income (DTI) Ratio, and Loan-to-Value (LTV) Ratio. By considering these factors, the study aims to provide a detailed view of the challenges faced by minority borrowers in the mortgage market, even if the goal is not to prove the existence of any illegal practices.

What are the implications of the findings on approval rates among different racial and ethnic groups?

The research highlights significant disparities in mortgage approval rates between racial and ethnic groups. Unconditional disparities, which don't account for Creditworthiness factors, show substantial differences in outcomes. However, even after considering factors like Credit Score, Loan-to-Value (LTV) Ratio, and Debt-to-Income (DTI) Ratio, these disparities persist, though they are smaller. For instance, Black, Samoan, Guamanian/Chamorro, Puerto Rican, and Cuban applicants experience the highest denial rates, while non-Hispanic White and Japanese applicants have the lowest. This indicates that systemic barriers beyond just creditworthiness may be impacting approval rates, potentially leading to unequal homeownership rates.

How do Loan-to-Value (LTV) and Debt-to-Income (DTI) ratios contribute to the disparities observed in mortgage access?

Both Loan-to-Value (LTV) and Debt-to-Income (DTI) ratios can contribute to disparities in mortgage access. The study reveals that Black applicants, in particular, tend to have higher Loan-to-Value (LTV) ratios even with similar Credit Scores. This may reflect the racial wealth gap where borrowers with less wealth need to rely on financing for a greater portion of the purchase price, potentially increasing their risk profile in the eyes of lenders. Similarly, Debt-to-Income (DTI) ratios, which reflect a borrower's ability to manage their debt relative to their income, can also impact approval rates. Higher DTI ratios can make it more challenging to obtain a mortgage, further contributing to unequal access. These factors, combined with differences in Credit Score, create a complex landscape of disparities in the mortgage market.

What are the broader societal consequences of disparities in mortgage access, and how does addressing these issues contribute to a more equitable housing market?

Disparities in mortgage access have significant broader societal consequences. They can lead to unequal homeownership rates across different racial and ethnic groups, which in turn impacts wealth accumulation and intergenerational mobility. Owning a home is a crucial part of achieving financial security and building wealth. When minority groups face barriers to mortgage access, they are less able to build wealth through homeownership, which exacerbates existing wealth gaps. Addressing these issues requires understanding the complexities of these disparities and working towards a more equitable mortgage market. This could involve targeted policy interventions to address systemic barriers, promote fair lending practices, and ensure that everyone has a fair chance to achieve the dream of homeownership.