While interest rate hikes affect all homebuyers, lower-income households are especially vulnerable because banks use the debt-to-income ratio to qualify borrowers for loans — and such households have tighter budgets and may not qualify for credit.
The Federal Reserve’s effort to contain inflation is making it more difficult for lower-income Americans to buy a house, according to experts and a recent study.
Getting shut out of homeownership can hurt many low-income households’ long-term financial prospects because home equity wealth can be used for retirement, funding education, or financing a small business among other opportunities. "... these households' budgets are tighter and they more frequently come up against binding payment-to-income ratio constraints in credit decisions." Daniel Ringo, the Fed researcher, wrote. “If rates rose, their resulting DTI ratio may be too high to qualify for credit."
"When you have interest rates as high as they are, that difference of a monthly payment of $300 to $400 a month has now totally boxed [lower-income families] out of being able to qualify for any of the affordable properties that were within their range," Akinbowale said.A home provides not just a roof over a family’s head, but also financial opportunities down the road.
The difference in financial opportunities can be vast. The net worth of homeowners is 40 times higher than renters. In 2019, the median net worth of homeowners was $255,000, versus $6,300 for renters, according to theHome equity has only grown since. Year over year, national homeowner equity increased by $1 trillion, or 7.
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