How lenders can help more borrowers become homeowners

BLOG VIEW: With rising rates and steadily rising home prices, home ownership may seem like overkill to some. In fact, in 2021, the median age of homebuyers was 45, up from 31 in 1981, according to the National Association of Realtors.

This is a pretty big leap in a short time – and can make people under 45 feel like home ownership is out of reach.

However, educational resources and programs are available to help potential buyers prepare for home ownership. From state-specific national and government agency programs to community and portfolio loan programs, there are many solutions that can make the dream of home ownership possible.

Common Myths About Homeownership and Affordability

When it comes to the home buying process, there are a lot of assumptions about what is needed. For example, many people feel like they need a 20% down payment, which can be difficult for the average borrower to achieve.

However, there are programs that allow a down payment as low as 3%, which greatly increases affordability.

At the end of 2021, the median selling price for existing homes was $361,700. For a home buyer to deposit 20%, they would need $73,340.

If a homebuyer put down a national average down payment of 12% in 2021, that would require $43,404. However, if they qualify for a 3% program, they would only have to deposit $10,851, which is a lot less money to save and deposit.

To reach that 3% range, Fannie Mae’s Home Ready and Freddie Mac’s Home Possible programs are a great option. Private mortgage insurance also allows buyers to qualify for a lower down payment. Yes, private mortgage insurance is an added 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 move into a home sooner and start building equity sooner.

A mortgage is much more than allowing a borrower to rest at night, it is also a form of financial wealth building.

Even for potential buyers who cannot provide a down payment themselves, there are additional options to make home ownership possible, such as gift funds supporting the down payment. Additionally, there are Down Payment Assistance (DPA) programs, which offer grants and/or low-interest loans to help buyers achieve their dream of home ownership.

Another myth discouraging homeownership is that imperfect credit scores prevent borrowers from owning a home. A borrower does not 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 the Federal Housing Administration (FHA) goes even lower. The borrower just needs to know their credit rating today and understand where they stand between credit and qualifications, in order to take the necessary steps to qualify.

Finally, there is a common myth that someone in debt will not qualify for housing. While each person’s situation is unique, having student loan debt by itself does not prevent someone from buying a home – it all depends on how that debt fits into their debt ratio. -income (DTI) current.

The average student debt is $28,950, which is substantial. However, in some states, programs exist to help homebuyers 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 find out what’s available in your state.

Sharing educational resources with new borrowers is essential

For borrowers who may be new to the home buying process, there are many resources that provide information on available programs.

Websites such as allow borrowers to find downpayment programs in their area.

I also recommend researching the local housing finance agency by state and researching programs at the city and even county level.

Lenders should also share the free homebuyer training courses offered by Fannie Mae and Freddie Mac. These courses and resources also give borrowers insight into the home buying process from start to finish and help them plan their expenses beyond mortgage payments.

Get more borrowers approved

Lenders play a vital role in the home buying process and must ensure that the borrower has all the resources and tools they need to be successful. By educating borrowers, especially first-time home buyers, about the entire mortgage process, pointing out 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 home ownership. Make sure the Borrower Resources site on your webpage has tools to calculate an actual budget and explains types of loans, down payments and closing costs, what is taking out a mortgage and on which components a loan is decided.

A critical area in which lenders should educate borrowers is credit and DTI, as DTI is the number one reason a borrower is turned down. This suggests that many borrowers do not understand DTI or how it works.

The same goes for credit – many borrowers don’t understand how it’s built and how they can set a less than perfect score. By helping borrowers understand DTI and credit, loan officers help them close smoothly.

How LOs can help their clients achieve the dream of home ownership

Loan officers can be the biggest contributor to borrower success if they have the right tools and resources. Loan officers should be familiar with investor, in-house, and federal government programs, as well as state and county-specific housing programs. It is important to always learn and constantly educate yourself about program guidelines, housing initiatives, niches. This allows loan officers to match borrowers with the right programs.

Doing all the pre-offer work, such as getting pre-approved, identifying programs the borrower qualifies for, and having a down payment and closing costs together, can make the process easier. Knowing what costs to expect and what kind of assistance is available not only helps borrowers get the keys, but also ensures long-term affordability to keep them in their home.

To be a good loan officer, you need to have the tools and programs your borrowers need to achieve their dream of home ownership. Your knowledge of available options can make the difference in your buyer’s affordability options. Borrower education is essential; homebuyers who understand the process will make everything easier. Their success means your success. By equipping yourself with the right tools, you help your borrowers realize their dream of home ownership.

Crystal Smith is an account manager at Enact Mortgage Insurance, where she is responsible for the Maryland and District of Columbia region.

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