Black Homebuyers
In today’s mortgage market, one of the biggest changes shaping access to homeownership is the shift in how credit is evaluated. For decades, the traditional credit scoring system has created barriers for Black families, especially those who have historically been locked out of mainstream banking or who rely more heavily on alternative financial tools. But with recent credit innovations, doors are beginning to open wider if we know how to interpret the changes and use them strategically.
The New Floor for Credit Scores
Traditionally, lenders required a minimum FICO score of 620 or higher for most conventional loans, with government-backed programs like FHA offering more flexibility at 550. Today, some lenders are now recognizing a wider picture of financial responsibility such as consistent rent, utility, or even streaming service payments. This innovation is significant for African American borrowers, many of whom have strong payment histories outside of traditional credit cards but were penalized in the old system.
This doesn’t mean credit scores are irrelevant. A 740+ score still unlocks the best rates and lowest fees. But the growing use of “alternative credit data” means someone with a 600 or even 580 score may now have more viable pathways to homeownership without being automatically disqualified.
The Cost Difference of Credit Scores
What does this mean in dollars and cents? A borrower with a 620 score may pay significantly more in rate and fees than someone with a 740 score. For example, on a $250,000 loan, the difference in interest over the life of the loan can reach tens of thousands of dollars. Lender fees, known as “loan level pricing adjustments,” are often tied directly to your credit score. A higher score reduces these costs. For Black families already facing the racial wealth gap, this makes building and protecting credit one of the most powerful financial tools available.
Lender Overlays The Hidden Rules
Even with federal programs like FHA or VA that allow lower credit scores, many lenders apply what are called lender overlays. These are additional rules or restrictions a lender places on top of the basic program requirements. For instance, FHA might approve a loan at 580 with 3.5% down, but a lender may set their internal minimum at 620. This creates confusion and often discourages first-time buyers.
Understanding overlays is crucial: being denied by one lender doesn’t necessarily mean you can’t qualify elsewhere. The key is working with a mortgage professional who understands these nuances and has access to multiple lenders, rather than giving up after one “no.”
What This Means for Black Homebuyers
For the African American community, these changes present both opportunity and responsibility. The opportunity lies in the fact that new credit innovations are finally considering real-life financial behaviors that many in our community already excel in like paying rent faithfully for years. The responsibility is making sure we are building, protecting, and monitoring our credit so that when the time comes, we qualify not just for a loan but for the best loan possible.
Steps You Can Take Now
- Check Your Credit – Don’t assume you know your score; pull a full credit report and understand what’s being reported.
- Leverage Alternative Data – If your lender offers programs that factor in rent and utility payments, make sure those histories are included.
- Shop Around – Don’t let one denial stop you; overlays vary from lender to lender.
- Focus on the Long Game – Even if you qualify today with a 600 score, work to raise it post-purchase so you can refinance into a lower-cost loan later.
- Protect Your Score – Avoid late payments, minimize new debt, and resolve errors quickly.
The Bottom Line
Property is Power, but access begins with knowledge. Credit innovations are reshaping the landscape of mortgage lending, offering new ways for Black families to enter the market. At the same time, the difference between an average score and a strong one can mean thousands of dollars saved over a lifetime. Understanding credit floors, overlays, and costs isn’t just about numbers, it’s about creating wealth, stability, and legacy.
Dr. Anthony O. Kellum – CEO of Kellum Mortgage, LLC
Homeownership Advocate, Speaker, Author
NMLS # 1267030 NMLS #1567030
O: 313-263-6388 W: www.KelluMortgage.com.
Property is Power! is a movement to promote home and community ownership. Studies indicate
homeownership leads to higher graduation rates, family wealth, and community involvement.
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