PERSON OF THE WEEK: As the mortgage industry and its regulators strive to bring homeownership to more borrowers throughout the country, many lenders are working hard to find the best way to serve their lower-income clients and ensure they do not get left out in the current market, while still lending responsibly.
Otmane Laassel, branch manager and senior loan consultant at the Homespire Mortgage branch in Shady Grove, Maryland, recently spoke with MortgageOrb about serving the underserved mortgage borrower.
Q: What challenges are today’s underserved/low income borrowers facing?
Laassel: The current market can present a number of significant challenges for these borrowers. First, higher interest rates mean some borrowers will not qualify for as much, which can be a problem exacerbated by current home prices. A townhome that may have sold for $200,000 just a year or two ago could sell for $300,000 today. Paying a higher interest rate reduces buying power.
Higher prices also mean borrowers must come to the table with a higher down payment, which can be a big challenge for these buyers. This can also be made worse if the seller isn’t willing to pay the closing costs, which unfortunately, in the current market, they have no real incentive to do in many cases. However, if the borrower can get a seller to pay even a portion of these costs, it could give them a much needed hand up in the process.
If the client’s offer doesn’t come with enough cash, it will be more difficult for them to have the winning bid. However, cash alone may not be enough. To get the home, many buyers are often being asked to waive contingencies on inspections and appraisals, too, to make an offer more appealing.
Inventory is one of the biggest overall challenges for everyone, but especially lower income borrowers. There just aren’t enough homes in the needed price range, and the homes that are available often need a lot of work, racking up further costs.
Today, the competition is intense. Our real estate agent partners are telling us that they are fielding between 20 and 38 offers on each home, with some as much as 40% over asking price.
Q: Are there any best practices that can help mitigate some of these obstacles?
Laassel: Yes, but lenders and buyers’ agents must understand that we have to work every deal.
If our buyer has a low income, we often advise them to consider a co-signer so they can come to the table with a larger down payment. Sometimes, this could involve tapping into investments like their 401K just to be able to compete. Alternatively, some borrowers may qualify for down payment assistance, but that means the loan will take longer to close, and that’s not attractive to most sellers.
We’ve had prospective borrowers taking on second jobs to bump up their income for a future purchase, but that takes time and isn’t always feasible for everyone. As usual, paying off debts can help, but this too can take time, and the longer it takes, the less buying power these borrowers may have.
Q: What are some of the key areas lower income borrowers may overlook?
Laassel: First is the need to buy now. The market is tough, and they may spend more than they want. But if they have a home to sell, they’ll likely also be making more profit on that sale. Whether they have a home to sell or not, the longer they wait, the higher home prices and interest rates could go.
Second, tell prospective home buyers to evaluate whether they really need to move to a new location at this time. Most homeowners are holding a lot of equity in their homes and with a renovation loan, they can use that money to turn their current residence into the home they are seeking. And even though rates are rising, a cash-out refi may still make more sense for some homeowners than applying for a renovation loan or going through the process of buying a new home in the current market.
Finally, if they do decide to move forward on buying a new home, they need to be sure to work with a solid, reputable mortgage lender who can qualify them and close the loan for the new home quickly. Being able to close a loan in about two weeks gives borrowers a real edge in the market. At Homespire, we prefer to send approval letters, as these tend to carry more weight with sellers than pre-approval letters, which might not be as effective.
Basically, you have to go into this market like you mean business, and that means you have to be working with a lender who knows how to support you.
Q: Is there any good news coming for these borrowers?
Laassel: Absolutely. The mortgage landscape is very cyclical and a market that is less forgiving today will offer much greater opportunity in the future.
Demographics will play a key role and eventually we will see more real estate listed. Prices will come down and interest rates may even fall once the Fed deals with the current inflation issue. But, as always, this will take time.
The best news for low-income borrowers is that the industry wants to help them. Putting more people into homes they can afford is a top goal, both for today’s mortgage professionals and for the industry’s regulators.
We have loan products that can help get these clients’ new home financed, but we have to move fast, or they risk getting outbid and losing out on an opportunity. It’s a team effort and borrowers must work closely and diligently with the right, trusted mortgage professional that can help them achieve their goal.