Closing The Gap

Maisha And Eric Davis made a major move last year, literally and financially. “We bought our first home, a three-bedroom house in Baltimore. It’s in a quiet neighborhood, with a big yard where our children can play. It’s a good feeling, knowing that it’s ours,” says Maisha, 30, “we’re no longer throwing away money on rent.”

Just a few years ago, the dream of homeownership seemed out of reach for the Davises. “We had some credit problems in our past,” says Maisha. “When we applied for a mortgage, there were still some blemishes on our record, so the transaction fell through.”

In early 2004, though, Maisha’s employer sponsored a seminar for first-time home buyers. (Both Maisha and Eric, 34, are social workers for nonprofit organizations.) “I was pleasantly surprised to learn how many different financing options there are,” says Maisha. “If your credit is in order, it’s easier than you think to get a mortgage and buy a house.”

But not enough black families are buying homes, causing an ever-widening wealth gap between whites and African Americans in the U.S. According to the National Urban League, which recently released its annual State of Black America report, the homeownership rate for African Americans is nearly 50%, versus more than 70% for whites. This disparity in homeownership is reflected in net worth as well: a median of $6,100 for an African American family compared to $67,700 for white families.

Wealth-building strategies were the topic at a March meeting of the BLACK ENTERPRISE Board of Economists. The consensus among the BE board is that homeownership is the key to obtaining wealth.

“The net worth that was reported for white families is mostly home,” says Michelle Singletary, personal finance columnist for The Washington Post. “It’s not money in the bank. Homeownership is the key, in terms of obtaining wealth. People buy homes, keep them, or trade them. When they retire, they sell their homes, and that’s where their money comes from.”

Homeownership, especially for young people, can be the foundation of wealth building, according to Gerald D. Jaynes, a professor of economics and African American studies at Yale University who is also on the board. “Homeownership is one means of starting,” he says. “And it is probably the most important means, because it is going to be the most important asset for 95 out of 100 people.”

But that step isn’t as steep as it may seem. “A lot of people think that they have to save up 20% of the price of their ideal house,” says BE board member William Spriggs, senior research fellow at the Economic Policy Institute in Washington, D.C. “They think, ‘I have to have $100,000 [to buy a $500,000 home], and I don’t have anything like $100,000, so I’m never going to own a home.’ They just rule it out.”

But there is help available. “There are a lot of first-time home buyer programs now,” says Singletary, “and a lot more loan products, but many of those are for people who have good credit scores.”

Which leads