BLOG VIEW: With rising rates and home prices consistently going up, homeownership may seem like a far stretch for some. In fact, in 2021, the median age of home buyers was 45, compared to 31 in 1981, according to the National Association of Realtors.
This is quite a significant jump in a short amount of time – and may cause individuals under 45 to feel like homeownership is unattainable.
However, educational resources and programs are available that can help prospective buyers prepare for homeownership. From state-specific, national agency and government programs to community and portfolio lending programs, there are many solutions that can make the dream of homeownership possible.
Common Myths About Homeownership and Affordability
When it comes to the home buying process, there are a lot of assumptions about what is required. For instance, many people are under the impression they need a 20% down payment, which can be hard to attain for the average borrower.
However, there are programs that allow for a down payment as low as 3%, increasing affordability significantly.
By 2021 year-end, the median existing-home sales price was $361,700. For a home buyer to put down 20%, they would need $73,340.
If a home buyer was making the 2021 national down payment average of 12%, that would require $43,404. However, if eligible for a 3% program, they would only need to put down $10,851, which is significantly less money to save and put down.
To get to that 3% range, Fannie Mae’s Home Ready and Freddie Mac’s Home Possible programs are a great option. Private mortgage insurance also helps qualify buyers for a lower down payment. Yes, private mortgage insurance is an additional expense, but it allows borrowers to get into a home sooner and start building equity. Instead of spending years trying to build savings to cover that 20% (or even 12%), borrowers can get in a home earlier and start building equity sooner.
A mortgage is so much more than allowing a borrower a place to rest their head at night, it is also a form of building financial wealth.
Even for potential home buyers who can’t come up with a down payment on their own, there are additional options to make homeownership possible, such as gift funds supporting down payment. Additionally, there are down payment assistance (DPA) programs, that provide grants and/or low-to-no interest loans to help buyers realize the dream of homeownership.
Another myth deterring homeownership is that imperfect credit scores keep borrowers out of homes. A borrower doesn’t need to have a credit score of 720 or higher to buy a home. There are conventional loan programs for borrowers with credit scores as low as 620 and Federal Housing Administration (FHA) goes even lower. The borrower just needs to know their credit score today and understand where they fit between credit and qualifications, in order to take necessary steps to qualify.
Lastly, there is a common myth that a person with student debt will not qualify for a home. While every person’s circumstances are unique, having student loan debt itself doesn’t bar someone from buying a home – it all depends on how that debt fits into their current debt-to-income (DTI) ratio.
The average student loan debt is $28,950, which is substantial. However, in some states, programs exist to help home buyers with student loans afford homeownership. In Maryland, for example, there is a program where state funding can help pay off student loan debt up to $30,000 for qualified borrowers. Every state is different, but the key is to talk to your loan officer to know what is available in your state.
Sharing Educational Resources with New Borrowers is Key
For borrowers who may be new to the home buying process, there are quite a few resources that educate them on available programs.
Websites such as downpaymentresource.com enable borrowers to find down payment programs in their area.
I also recommend looking up the local housing finance agency by state and searching at the city and even county level for programs.
Lenders should also share the free home buyer education courses offered by Fannie Mae and Freddie Mac. These courses and resources also give borrowers a view into the home buying process from start to finish and help them figure out how to plan for expenses beyond the mortgage payments.
Getting More Borrowers Approved
Lenders play a vital role in the home buying process and should ensure the borrower has all the resources and tools they need to be successful. By educating borrowers, especially first-time home buyers, on the complete mortgage process, highlighting common pitfalls and ways to avoid them, a lender can have a higher success rate.
I think it’s also important to prepare a borrower for sustainable homeownership. Make sure the borrower resource site on your webpage has tools for calculating a real budget, and explains the types of loans, down payments and closing costs, what mortgage underwriting is and on which components a loan is decisioned.
One critical area in which lenders should be educating borrowers is credit and DTI, as DTI is the biggest reason a borrower is declined. This suggests that many borrowers do not understand DTI or how it works.
The same goes for credit – many borrowers do not understand how it is built and how they can fix a less-than-perfect score. By helping borrowers understand DTI and credit, loan officers help them get to closing without issues.
How LOs Can Help Their Customers Attain the Dream of Homeownership
Loan officers can be the biggest contributor to borrowers’ success if they are armed with the proper tools and resources. Loan officers should be knowledgeable about investor, in-house, and federal government programs, as well as state and county specific housing programs. It’s important to always be learning and constantly educate themselves on program guidelines, housing initiatives, niches. This enables loan officers to match borrowers with the right programs.
Doing all the leg work before the offer like getting pre-approved, identifying programs the borrower qualifies for, and having down payment and closing costs together, can make the process easier. Knowing what costs to expect and what type of assistance is available doesn’t just help the borrowers get the keys, but it ensures affordability long-term to keep them in their home.
To be a successful loan officer, you must be armed with tools and programs your borrowers need to achieve the dream of homeownership. Your knowledge of available options can make the difference in your buyer’s affordability options. Borrower education is key; home buyers who understand the process will make everything run smoother. Their success means your success. By equipping yourself with the right tools, you help your borrowers achieve their dream of homeownership.
Crystal Smith is an account manager at Enact Mortgage Insurance, where she is responsible for the Maryland and District of Columbia area.
