Why More Black and Hispanic Homeowners Don't Refinance Their Mortgage

Consumer Reports offers tips to overcome obstacles and save thousands of dollars a year

By Octavio Blanco

September 20, 2021

A Black couple speaking in their kitchen.

Naomi, a 28-year-old management consultant, recently refinanced the home she shares with her parents in Riverside, Calif., saving $4,800 a year in mortgage payments.

“When we purchased the house, we bought it at a really high interest rate,” she says. “Now, interest rates are really low. I got a 2.99 percent rate and overall I’ll save about $400 a month on our mortgage payment.”

Naomi, who didn’t want her last name used for privacy reasons, plans to use her savings to install solar panels and update the home’s driveway.

Her experience is unusual among Black and Latino homeowners, however. Despite the prospect of saving thousands of dollars a year, many of them aren’t taking advantage of historically low interest rates and refinancing their mortgage.

A recent study by the Federal Reserve Banks of Atlanta, Boston, and Philadelphia found that only 6 percent of all refi applications came from Black borrowers, while 9 percent came from Latinos.

There are several reasons why: economic hardship, a recent drop in credit score, lack of knowledge about how refinancing works (which is shared by the general population) and an overall distrust of banks.

There are, however, ways to overcome these obstacles, which we explain below.

Perhaps the biggest factor behind the lack of refinancing has been the Covid-19 pandemic, which hit Black and Latino communities much harder than other groups.

“COVID was wicked—a lot of people got laid off,” says Reverend Dr. Charles Butler, who helps run a New York–based nonprofit that offers housing counseling and other community empowerment programs.

“It’s hard to refinance,” Butler explains, “because banks want to see the same things when the borrower got approved for the mortgage in the first place: consistent employment, tax returns, credit, and all the other things. If some of that’s lacking, the opportunity for refinancing just is not going to be available.”

For example, if a homeowner misses just one mortgage payment, they may not be eligible to refinance until they make 12 more consecutive on-time payments, says Butler. But even homeowners with mortgages in good standing—and with no gap in employment—could be rejected if their income has fallen below what the bank feels is too risky, he says.

There’s also a persistent mistrust of the banking industry—and the refi industry in particular—among members of the Black and Latino communities.

“A lot of times you’ll see unscrupulous lenders showing up, knocking on their door saying, ‘We’ll refinance and repair your porch or windows,’ when in reality it’s predatory lending looking to steal their equity, or their house and their equity,” Butler says.

Many Blacks and Latinos are also still reeling from the 2008-9 mortgage meltdown, which hurt these communities at a higher rate than others.

“It’s such a hassle when you don’t have the right resources and already don’t trust banks, especially after the economic crash of ‘08,” says Naomi, who recalls how her family was devastated when the housing market cratered.

“I was pretty young and we were living in Southern California at the time,” she says. “We had to leave the house and move to Texas and just go from there.”

Years later, they returned to California, and armed with good credit and a good job, Naomi says she was able to help her family purchase a new home.

But even Naomi was hesitant to refinance. Among other reasons, she’d heard that shopping for a refi could have a negative impact on her credit score.

“Getting refinance quotes involves hard credit checks so there is no way to ‘shop around’ without impacting my credit,” says Naomi.

That concern is shared by many others in the Black and Latino communities, who tend to have lower credit scores than the broader population.

There are ways, however, to get past these roadblocks and—like Naomi—save thousands of dollars a year. Here are some key strategies to help you out.

Get Help From a HUD-Approved Counseling Agency

The biggest disadvantage consumers have is not knowing how the refinancing process works. So before you do anything, talk to someone at one of the hundreds of HUD-approved housing counseling agencies across the U.S.

These agencies, which are dedicated to educating consumers about homeownership, offer free or low-cost help to first-time homebuyers as well as information sessions after your purchase. They can help you get your documents in order and explain what refi options are best suited for you.

Establishing a relationship with one of these agencies ahead of time can help you avoid problems such as predatory lenders.

“It’s better to contact the housing counseling agency before you make a decision, rather than after—when you need to get bailed out of a bad decision,” says Butler. “Sometimes we don’t have enough tricks up our sleeves.”

The housing counseling experts in these agencies can also help in other ways.

For example, they can assist you in calculating the costs of a refi, and how long it’ll take to pay those back. That’s a sometimes confusing aspect you should understand before you move ahead. If you only plan to remain in your home a short time, the closing costs of a refi may not be worth it.

Submit Refi Applications at the Same Time

It’s a good idea to apply to several banks for refinancing. It improves your chances of getting approved and provides more options. But you have to make sure you do them all within a relatively short time to limit the impact on your credit score.

When multiple banks make a “hard inquiry” to check your credit history, that can temporarily cause your credit score to drop. But if all the loan inquiries are made between a 14-day to 45-day period, they usually are counted as just one inquiry, according to Experian, lessening the effect on your credit score.

So make sure all your information is organized ahead of time so you can quickly complete the application process with all potential lenders. Things that you’ll need include: a photo ID, your most recent paystubs, last two year’s W2 forms, a contact name and phone number at work for the underwriter to call and verify your salary and employment, and recent bank statements.

Be Your Own Advocate at the Bank

It’s important to let your bank know what your financial situation is—and why.

“What we’ve seen is that a lot of people whose income was interrupted have really worked to help the bank understand that it was because of COVID and now things are back to normal,” says Laura Ponce, executive director of the El Paso–based Project BRAVO, a HUD-approved home-ownership and community-action program.

“Advocate for yourself and make sure the bank understands that the changes in your income and employment are related to COVID, otherwise you won’t be able to take advantage of the policies and programs that were put in place due to the pandemic,” she adds.

Ponce says sometimes a refi may not ultimately be in the cards for a borrower who is not in good standing with the bank, but when you advocate for yourself, it’s more likely that the bank will explore other options with you.

Have a Plan for Your Savings

“You always ask yourself, ‘What’s the plan?,’” says Butler. “It’s a loan, so if you’re gonna have to pay it back, make sure to use it for something profitable. If you just want to take your girlfriend out to a fancy dinner, you don’t need to refi.”

Some uses for refi savings: Beefing up emergency cash reserves, increasing Roth IRA contributions, paying for maintenance or upgrades that will boost your home’s value, buying a second home, starting a business, and paying for yours or your child’s education.

Octavio Blanco

My mission: To write stories that broaden readers' horizons and offer new solutions they can apply to their lives. Who I write for: My family, my friends, my neighbors, myself, and—most important—you. My passions: Music, art, coffee, cheese, good TV, and riding my electric bike.