A new trend in home buying shows women are ditching the traditional custom that marriage should precede homeownership.
While this trend is encouraging in terms of women’s increasing financial independence, and the opportunity it presents to chip away at the gender wealth gap (given homeownership’s role in wealth building), women still face greater challenges to homeowner than men when it comes to buying a home.
Women Face Barriers to Homeownership
For many years, research has shown that women pay higher mortgage rates than men. The most recent analysis of data available through the Home Mortgage Disclosure Act revealed that women receive mortgage rates that on average are 8 to 10 points higher. For example, in Mississippi, single women paid an average rate of 3.47% for a 30-year, fixed-rate mortgage in 2019, compared to the average rate of 3.37% paid by single men.
While it seems small, the higher rate would result in about $7,000 extra in mortgage payments over a 30-year period. Considering that women already earn less than men based on several studies on gender pay gaps, the rate difference exacerbates financial inequality between the genders.
It’s difficult to pinpoint whether mortgage lending discrimination contributes to the difference since several other factors are at play. Most of the discrepancy can be explained by women’s lower incomes, their historical lack of confidence in the home buying process, and the way they shop for mortgages. The good news is that women have access to resources that can mitigate some of these factors.
Gender Wage Gap
While the wage gap has shrunk significantly since women entered the workforce, women still earned 17% less than men on average in 2021. Much of the gap is due to the occupations women choose and differences in hours that occur as a result of women taking on family caregiving duties (including leaves of absence during and after pregnancy).
But the gender wage gap can’t entirely be explained by these factors. About 41% of the gender pay gap is due to factors we can’t quantify. In almost every industry, women earn less than men, even when accounting for education and experience. Some experts contend that some discrimination is likely, even if it’s unintentional, but once again, it is very difficult to prove.
That said, as income is the main determining factor in qualifying for a mortgage, it’s a big reason why women are denied mortgages at higher rates. Also, a higher debt-to-income ratio will result in higher mortgage rate, putting women at a disadvantage when buying a home.
Home Buying Confidence Gap
According to data from Freddie Mac, almost 60% of single, head-of-household women renters believe homeownership will never be possible. And fewer than half feel confident in their knowledge of the home buying process, including understanding the types of mortgages and how to evaluate interest rates and compare loan offers.
63% of women report not knowing how to start the home buying process, while 55% say they don’t know anyone who can help. Three-quarters of women also believe that a mortgage would be more costly than renting, even though mortgages are more affordable than rents in most housing markets in the U.S.
Single women can increase their confidence by taking steps to develop a better understanding of home buying process. A variety of resources are available online for women homebuyers, including our very own website as well as this blog! We would also invite prospective buyers to reach out to us directly to discuss the steps to home buying a home, and how we can assist through each of these!
Financial Literacy Gap
Issues with women’s confidence in the home buying process are exacerbated by the financial literacy gap between genders. Women tend to lag behind men in their financial knowledge, in general but also with regards to mortgages. There’s a cultural explanation for this—Americans still believe it’s important for men to be the financial providers and to handle such matters, as such men more often make financial decisions for the household, which in turn builds their financial knowledge. Studies have also shown differences in how parents talk to their sons and daughters about finances.
The bias is reflected in women’s self-assessment of their financial literacy and mortgage knowledge. Only 21% of women first-time homebuyers report feeling very familiar with available mortgage types, compared to 27% of men buying homes for the first time, according to a study by Lending Tree. And just 28% of women first-time homebuyers say they’re very familiar with the current mortgage rates, as opposed to 37% of men.
But the difference that is costing women the most is their tendency to be less likely to shop around. Just 21% of women apply to multiple lenders, compared to 23% of men. LendingTree estimates that skipping the rate comparison process could be costing women $1 billion every year.
That’s not counting the higher rates women already pay on the mortgages they do apply for, which may be caused by weaker credit characteristics.
Are women’s credit profiles less attractive to lenders? It’s difficult to say with accuracy. Thanks to the Equal Credit Opportunity Act, credit reports aren’t attached to demographic characteristics, so data about gender and credit history don’t typically come from the same sources. Analysts have imperfect data to work with when determining disparities in credit scores.
In any case, a 2016 study by the Urban Institute found that a higher percentage of mortgages taken out by single women are subprime, and that women pay higher mortgage rates and face higher denial rates. This despite data clearly shows women are better at keeping up with their mortgage payments than men. With all other credit characteristics held constant, single-women borrowers are less likely to default than single men. Credit scores are therefore flawed as predictors of responsible payment behavior, and women are shouldering the negative impact of that fact.
Why Women Should Buy A Home
Women may lag behind men in financial literacy, but they’re savvier than they think when making financial decisions. Though they have more self-doubt than men, they’ve proven to be good investors, and they save a higher percentage of their earnings than men. The diligence and consistency with which women manage their finances set them up to be successful homeowners.
Research shows women are also more risk-averse than men when it comes to making financial decisions. The best way to deal with risk aversion isn’t to avoid purchasing, since that comes with its own risks, but rather to diversify your portfolio of investments. A home serves as a shelter as well as an investment and can be an excellent way to provide diversification. During most market downturns, real estate prices have held steady or continued to appreciate.
For women who feel intimidated or discouraged, just acknowledging the confidence gap in the homebuying process can help to shrink it. Education can go even further in helping women feel prepared to begin the home buying process.
If you’re looking for a place to start, our website is a great place to start however, when you’re ready we’d invite you to contact us to address and any questions you may have, and to discuss how we can be of assistance and help you achieve your real estate goals.
The sooner you begin your real estate investing journey, the more time you’ll have to build your personal wealth (as opposed to that of your landlord – see Renting vs Buying). Let’s shrink the gender wealth gap together, one woman homeowner at a time.
If you, or someone you know is considering Buying or Selling an Investment Property in Columbus, Ohio please give us a call and we’d be happy to assist you!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235