Homebuying & Mortgage Advice for First-time Homebuyers
Mortgage and consumer financial experts have provided advice you can use to create content that advises first-time homebuyers on how to prepare to apply for a mortgage or buy their first home.
Brian Vieaux, President & COO of FinLocker
Scott Schang, CEO of Find My Way Home
Dustin Owen, Host of The Loan Officer Podcast
Sue Buswell, Credit and Score Consultant, #sueknowsthescore
Catalina Kaiyoorawongs, CEO & Co-Founder, LoanSense
Paul Gigliotti, COO & Executive Board Member, Axis Lending Academy
Jeffrey Walker, CEO and Co-Founder, CredEvolv
Mike Faraci, CEO & Founder, Red Button Media
Rob Chrane, CEO & Founder of Down Payment Resource
Dan Smokoska, Founder of Loangendary Marketing
Jeremy Potter, Strategist and Advisor
Jacqui Cosgrove, Founder of Kore4Capital
View all previous articles
Advice for First-Time Homebuyers Hesitant to Enter the Market
Brian Vieaux, President & COO, FinLocker
If I had to give one piece of advice to early journey first-time homebuyers, it would be this: Own real estate early.
When I was younger, my grandfather taught me valuable lessons about saving by paying yourself first and using the power of compound interest and the Rule of 72 to calculate how many years it should take for your money to double based on the annual interest rate your savings are earning. He also introduced me to investing in real estate, which is arguably one of the best assets to have in your portfolio.
For first-time home buyers, it’s more important to get into the market and own real estate than to obsess over finding the perfect home. I encourage individuals early in their homeownership journey to not fixate on the attributes. Don’t get caught up in the fancy features like marble bathrooms, steam showers, or quartz kitchen countertops.
Instead, focus on buying your first home, even if it’s just for a few years to let the power of appreciation and equity work in your favor. This will help you build wealth in two ways:
First, every time you make your mortgage payment, a portion of it goes towards paying down the borrowed money. So, from day one, you’re essentially putting money into a forced savings account. With each payment, you’re building equity and increasing your net worth.
Secondly, property appreciation is another significant advantage of owning real estate. Even with a modest annual appreciation rate of 2-1/2% to 3% over 5 to 10 years, you can significantly grow your personal net worth through property appreciation alone. It’s like having your money work for you while you enjoy the benefits of homeownership.
So, remember, don’t overlook the long-term benefits of owning real estate. Start early, focus on building equity, and let property appreciation help you grow your wealth.
Navigating the Impending Student Loan Repayment Crisis: An Opportunity for Advocacy and Education
Scott Schang, CEO of Find My Way Home
The Coming Crisis
The restart of student loan payments in October 2023 poses a significant challenge to the financial well-being of approximately 49 million Americans. It’s not just the borrowers who will be affected, but the repercussions will ripple across the entire financial sector, including our own domain – the housing industry.
The Problem Intensified
In 2020, the CARES Act offered respite to millions by allowing homeowners and student loan borrowers to defer payments. But the story diverges here: homeowners *chose* deferment while it was automatic for student loan borrowers.
Three years on, with inflation at large and a possible recession in the wings, families are struggling to spare an extra $300 to $1,000 monthly for student loan repayments.
Making matters worse, private student loan consolidation companies are persuading borrowers to switch from federal to private loans. Such moves put borrowers at risk of losing federal relief programs and expose them to the high-interest rates of private loans.
Our Responsibility and Opportunity
As loan officers, it’s upon us to intervene. We have the opportunity to educate our past clients, referral partners, and homebuyer prospects about the looming difficulties surrounding the student loan repayment restart. This crisis presents a chance for us to reconnect with our network, providing them with accurate and financially responsible information.
Yes, debt consolidation conversations could be part of the solution for those struggling with maxed-out credit cards and credit lines now approaching double-digit interest rates.
However, our ultimate goal is consumer advocacy – to help our clients avoid undue financial hardship by illuminating the spectrum of options available to them, primarily an income-based repayment plan,
LoanSense: Your Secret Weapon
LoanSense, a valued contributor to the FinTalk newsletter, offers tools and advice for restructuring student loan payments based on current income. Their simple calculator can help borrowers:
- Understand their eligibility for federal, income-based payment programs.
Prevent a financial crisis leading to late payments, lower credit scores, and a strained financial recovery.
Conclusion: A Call to Advocacy and Action
Proactive education and empowerment are our most powerful tools to combat this impending crisis. As the deadline looms, it’s time for us to step up and navigate this turbulent financial landscape, advocating for our clients while safeguarding the health of our industry.
Your Mortgage is NOT a 15, 20 or Even 30 Year Decision
Dustin Owen, Host, The Loan Officer Podcast
A common mistake I have witnessed over the past two decades of serving thousands of homebuyers as they partake in what is usually the biggest purchase of their life is they look at their home loan as if they will actually have this loan for the next 15, 20 or even 30 years. Statistically, this is not true. It is even improbable the buyer will even own the home in seven years; especially if this is the buyer’s first time owning.
A home loan (aka mortgage) is a tool. It is an instrument. This tool is used to help solve a problem. The problem is that someone wants to purchase a house, but they don’t have the funds to do so. Or, they may have the money but do not wish to deploy those assets to purchase said property.
My advice to all homebuyers, especially those buying their first home, is to look at their mortgage as a means to an end. This instrument is going to be used to allow the purchase to happen. The homebuyer needs to choose a mortgage based on two criteria. The first is basic; yet important. The buyer needs to qualify for the loan. The second criterion is the difference between obtaining just any home loan or the right home loan. The “right” home loan takes into account the purchaser’s financial needs, wants and goals. The mortgage loan originator facilitating the transaction should be asking questions such as, “How long do you see yourself owning this home?”. Or, “Are you in a place in your career where you expect your income to increase marginally from year to year or do you have reason to believe your income will growth exponentially?”. There should even be some dialog as it pertains to monthly budgeting, saving for retirement, discussions around upcoming expenses or even plans to eliminate negative debt such as credit cards.
Finally, it is paramount for a homebuyer to understand that throughout the past 30+ years homeowners keep their same mortgage on average for 5 to 7 years. That’s it! This is because ultimately the homeowner will either sell their house, pay off their mortgage or obtain a new home loan via a refinance because a new loan either offers better terms or a new mortgage is required to better fulfil current financial needs, wants and goals. And from time to time, a refinance does both.
Before buying a home, purchasers should adjust their mindset. Approach each decision as if it is a 5 to 7 year decision. Once the mindset shifts, the decision making process becomes more accurate and less cumbersome.
Creating content that communicates the benefits of homeownership to Gen Z
Sue Buswell, Consultant #sueknowsthescore
First-time homebuyers are often taught about the credit score they need to qualify. About the down payment, closing costs and other loan fees. About being financially ready to buy.
Being on the credit side of the business for decades, I have seen first-time homebuyers get caught up in their new home.
They scrimped, saved and finally had the money to buy, and once in the home, they continued to buy.
New house? New furniture, on my new credit card. New appliances – that stove was awful! Interest free from the big box store. New flowers in the garden, and a new patio to show off my garden, also interest free.
Then the hot water heater went. And the ice maker in the fridge. The windows need replacing, we are getting more rain inside than out. Some of that may be covered under a home warranty, but reality sets in that owning a home comes with financial responsibilities that do not end at the closing table.
All too often, new homeowners realize the new inquiries and new debt have negatively impacted their score, making it more difficult to find the funds to pay for the necessary things.
It’s not enough anymore to just prepare our homebuyers for the purchase. We need to set them up for success as homeowners. That means talking about the financial responsibility of homeownership.
Maintaining the home – their largest asset – requires a line item on their budget. Maintaining their good credit rating – the one they worked so hard to achieve to buy the home – requires discipline.
If I could offer advice to the future homebuyer, this would be it. Work with a Lender who provides not only the keys to your home, but the keys to your financial success.
5 Tips for Financial Success That I Wish I Had Understood at a Younger Age
Catalina Kaiyoorawongs, CEO & Co-Founder, LoanSense
Practice being a prolific saver. It can even be savings for a future spending occurrence – but the power of saving is a muscle that requires development and practice, just like an endurance runner. It doesn’t happen overnight without training and a plan.
Pay yourself first. To be a prolific saver, I set aside my savings to be automatically deposited into a separate account that can’t be easily transferred and then use the remainder to pay my bills. I would challenge myself to move from saving 10% all the way up to 30% of my earnings into my savings account.
Live below your means. To become a prolific saver, you have to live below your means. If you earn $1,000 a month working a part-time job and save $300, you must adjust your lifestyle to live on the remaining $700. Living below one’s means allows you to practice prolific savings, paying yourself first. Often as people earn more, they spend more. Just because you make more does not mean you have to inflate your lifestyle. Instead, you should increase the percentage amount from your salary that you are saving. Of course, you can buy yourself a treat to celebrate your extra salary, but then pretend you don’t have it.
Track your spending. For me, to learn how to live below my means meant tracking how much I was spending. I did this the first time when I was 17. In high school, I lived at home with my parents, so I often went out with friends to buy coffee and meals. I earned money working part-time, but I spent $600 a month. This is without any real bills! I always thought I didn’t spend much money until I started tracking my spending. To learn how to live below your means, it’s important to understand your monthly spending.
Understand how your decisions today impact your decisions later in life. And then, last but not least, our systems are not connected. If you plan to get an education and take out loans to achieve that, this decision can impact your pathway to buying a home later. Early on your homeownership journey, it’s important to understand the best mortgage product and qualification criteria. Because once you start shopping for a home and try to get pre-qualified, that’s too late. You must self-educate and meet with a loan officer before applying. We have a simple calculator to help you and your borrowers to start planning now.
Don’t Forget to Enjoy Your Journey to Homeownership
Paul Gigliotti, COO & Executive Board Member, Axis Lending Academy
We all have experiences that change us, that propel us into a different trajectory. Some experiences provide us with a place to pour our passion, love, energy, and creativity into. Ultimately, all experiences help us to learn, grow, and share our growth with others. For you, first-time home buyers, that experience is homeownership. It’s a great experience… plus homeownership is one of the most solid investments available.
According to a new study by the National Association of Realtors (NAP) over a 10-year period between 2012 and 2022, the value of a median priced home in the US appreciated by $190,000. That is a gain of $19,000 per year on average. A typical homeowner’s net worth is 40 times higher than that of a renter. So, homeownership provides huge benefits and changes the trajectory of your life. Yet it is still a big CHANGE… and change is scary. It’s scary having the largest amount of debit in your life, with the largest monthly expense you’ve known, with all of the responsibility, the upkeep, the work. But we all know that those scary “things” we do are the things that create growth.
My advice to first-time homeowners as you start your journey of buying your first home is simply to enjoy the journey. It’s liberating, it’s fun, it’s yours, and it’s full of opportunity. You will receive lots of advice and feedback from friends and family, while they have your best interest at heart every homeowner has specific needs and different circumstances, so the advice might not be 100% applicable to you. Though, they can be a great resource for referrals professionals. It is crucial to surround yourself with professionals you trust such as Mortgage Advisors, Real Estate Agents, CPA’s and Financial Advisors. It takes a village and if you are aligned with the folks in your villages the trust created will support a more fulfilling journey. Also remember that since this is your first home, you very well might purchase up in the future, so be gentle with the requirements you have. Home ownership grows with you as your life changes and is a part of the story of that growth. Enjoy- expand and create.
Embrace your Mortgage Servicer in Times of Trouble
Jeffrey Walker, CEO and Co-Founder, CredEvolv
A lot of homeownership advice is related to the total cost of ownership (can I afford to maintain my property), the value of home equity, and the importance of having appropriate reserves and cash flow. But even the best-prepared future homebuyers can’t anticipate the temporary challenges that life can throw their way long after they have established themselves as responsible homeowners. The advice I give new borrowers isn’t actually related to obtaining a mortgage but rather what you need to understand about maintaining a mortgage. One of the biggest mistakes a borrower can make is to assume that their mortgage servicer (the company to whom they make their mortgage payment) is their adversary.
Let’s face it, sometimes bad stuff happens to good people. The global economy is unstable: unemployment rates rise and fall, home values don’t always rise, your dream job and associated income is not guaranteed, and good health is a blessing but not a given. Borrowers have some control over these risks, but not absolute control – sometimes you stumble and need a ‘hand up.’ But financial hardship is stressful, and frankly many of us prefer to deal with it privately. And let’s face it banks and lenders haven’t engendered a ton of trust with consumers over the last couple of decades. But that lack of trust can actually impede a borrower’s ability to effectively manage hardship and remain a homeowner. And like any relationship, lack of communication only exacerbates the problem.
Consider this – over the last couple of decades, mortgage servicers have made significant headway (some motivated by culture changes, others by regulation) in their ability to offer meaningful assistance to borrowers who have a temporary hardship. Loan forbearance and loan term modifications are two great examples. Unfortunately, too many consumers ignore their servicer’s outreaches, thinking instead that they will be harassed or threatened. In reality, servicers now have an extensive toolkit of options to help borrowers stay in their homes while they address their temporary challenges.
My advice is don’t suffer in silence. Embrace your servicer and take (or preferably make) that call before you have no options.
Captivating First-Time Homebuyers Through Video Content
Mike Faraci, CEO & Founder, Red Button Media
It’s 2023 and video content isn’t just here to stay… it has become the most effective way reach and connect with potential clients, referral sources, and business partners. And this has never been more important in the mortgage industry than it is right now.
The good news is that making a video and posting online costs you exactly zero dollars! This is something any mortgage professional can do immediately. And with a few tips, and a little bit of intent, we’ll have you standing out from the crowd in no time.
Who Can Make a Good Video?
You can – as long as you’re being yourself!
People connect with real, relatable individuals. Be yourself on camera and let your personality shine through. Authenticity fosters trust and helps viewers feel more comfortable reaching out to you. Focus on delivering information in a friendly and approachable manner.
Don’t forget that mortgages can be confusing to those outside of the industry. Try to picture yourself explaining more complex concepts to a fourth grader and that will get you in the right mindset when making educational content.
Making Video for First-Time Homebuyers
All good video starts with knowing who you’re talking to. In this case, we’re talking to potential first-time homebuyers, so let’s focus on delivering the most value we possibly can. Here are some of my favorite video ideas that will resonate with first-time homebuyers:
- You don’t need 20% down to buy a home: About half the country still thinks you do (seriously). Your foundational mortgage knowledge can be eye-opening and empowering to tons of potential homebuyers.
- Down payment assistance programs: Just talk about what you have to offer. Many renters can afford a housing payment and don’t think they have enough money for a down payment. Prove them wrong and create homebuyers to do business with.
- Tips and tricks for saving, budgeting, improving credit scores, and overall financial fitness: Just because someone isn’t ready to buy now doesn’t mean we shouldn’t be helping them get ready to buy in the future. This will also help you build trust with your viewers and become an advisor for them to turn to. It’s also a great way to build your future pipeline.
How To Get Your Video Content Seen
In short, post it everywhere! Here are a few tips to give you a head start:
- Start with your digital home: Facebook, Instagram, YouTube, LinkedIn, TikTok, Twitter, etc… There are A LOT of social media platforms out there and it can be overwhelming trying to tackle them all. Start on the one platform you’re most comfortable with and have the largest existing audience on. You can expand from there once you get comfortable.
- Be consistent: The only fool-proof way to build an audience is by posting consistently. Daily is great, and multiple times per day is better, but this can be too much to handle for many professionals. When you’re starting out, just get on a consistent posting schedule. If it’s once a week, that’s fine. Walk before you run.
- Engage with your audience: Respond to comments, ask for feedback, encourage viewers to share with others, collaborate with local real estate agents to expand your reach. Don’t just talk to your audience – talk with them.
Consistently providing value through video content will help you build trust, credibility, and long-term relationships with potential customers and referral sources. Being focused on the intent of your video content, and the exact viewer you want to reach, can establish a mortgage professional as a valuable resource that people trust and won’t hesitate to reach out to come transaction time.
Why There’s No Better Time Than Now to Buy Your First Home
Rob Chrane, CEO & Founder of Down Payment Resource
Despite challenging economic conditions and market dynamics, I feel an important piece of advice for aspiring homebuyers is simply don’t wait. We often see buyers sidelining themselves due to a lack of knowledge or misinformation regarding what it takes to become a homeowner. With proper education and the right home buying team at their side, homebuyers may be surprised to find they can purchase sooner rather than later.
Take this success story we received from Florida broker and Stellar MLS member Peter Rivera, for example. Peter was working with a single mother of two who had the income and credit scores to qualify for a mortgage but lacked the down payment. Instead of waiting the approximately four years it would take for her to save up for the minimum down payment, Peter was able to connect her with a down payment assistance program that allowed her to purchase immediately. In the four years she would have spent saving for her down payment, she acquired tens-of-thousands of dollars in equity and was able to upgrade to a new-construction home for her and her two daughters.
Whether someone is looking to purchase now or years from now, it’s never too early to learn more about the homebuying process. Homebuyer education courses are available that cover the logistics and steps to buying a home, as well as financing basics, homeownership responsibilities and obligations. This valuable, upfront education helps homebuyers prepare for the home buying process and sets them up for long-term homeownership success.
Plus, most down payment assistance programs require homebuyer education, especially for first-time buyers (defined as someone who hasn’t owned a home in three years). These are often offered online so they can be completed at the buyer’s convenience, and certificates are typically valid for a year.
Bottomline, start now. Take a homebuyer education course. Talk to a housing counselor. Meet with real estate agents and lenders. Proper education from trusted advisors and knowing where they stand financially provides the ideal foundation homebuyers need to start building generational wealth through homeownership.
Why First-time Homebuyers Should Obsess Over Their Credit Score
Steve Ely, CEO of eCredable
When it comes to how first-time homebuyers view their credit score, I’ve often heard “what’s the minimum score I need to qualify”? They should be asking themselves “what’s the maximum score I can earn before I have to submit my mortgage application?”. I don’t normally advise people to obsess over their credit score, but this is one time when I would absolutely encourage them to do just that. It comes down to simple math.
Your already know your credit score plays a crucial role in determining the terms and conditions of loans, including mortgages. A credit score of 680 compared to 720 can have a noticeable impact on the payment for a mortgage of $350,000. A credit score of 720 is generally considered to be in the “good” range, while a score of 680 is considered “fair.”
With a credit score of 720, you’re likely to be offered more favorable interest rates and loan terms. Assuming a 30-year fixed-rate mortgage at a current average interest rate of 4%, your monthly payment would be approximately $1,670. On the other hand, with a credit score of 680, your interest rate might be slightly higher, say around 4.5%. This would result in a monthly payment of approximately $1,775.
While the difference in monthly payment might seem modest, it can add up significantly over the life of the loan. In this scenario, over 30 years, the higher credit score could potentially save you over $30,000 in total payments.
Go ahead and start obsessing while you have the time. Building a good credit score can save you money in the long run and provide you with better financing options when it comes to major purchases like a mortgage.
Keep It Simple, Stupid + a Free Marketing Resource for LOs
Dan Smokoska, Founder of Loangendary Marketing
My advice to first-time homebuyers: Find a great loan officer to work with.
My advice to loan officers: Be a great loan officer to work with.
Brand new borrowers don’t know what they don’t know, and it’s our job to fill in the knowledge gaps. But what are those gaps? Well, it’s pretty much everything. Since it’s their first time, first-time homebuyers tend to know very little.
And because of this, I like to assume they have zero knowledge about the financing process. Is it because they’re not smart? No. It’s because they’ve never done it before.
And that’s where you come in.
Great loan officers know how to simplify a complicated, jargon-heavy loan process. And it’s in that simplification that your borrower begins to understand what it takes to buy a home. Add in consistent communication and the result turns into a happy first-time homebuyer.
Ok, here’s where it gets good.
If you follow me on LinkedIn you know I like to give away free mortgage marketing resources. Why? Because every loan officer should be able to win more business and steal more agents. So, here you go…
Your FREE Tool: The Be Loangendary Borrower Persona Guide. Including a section dedicated to first-time homebuyers.
Use the Persona Guide to drive conversations and create high-quality content. And remember, making the home-buying process simple leads to future happy homebuyers.
Working with Future First Time Home Buyers Means Answering the Right Question
Jeremy Potter, Strategist and Advisor
In Cameron Crowe’s screenplay for Vanilla Sky, David Aames Jr., played by Tom Cruise, says, “My father wrote this in his book, you know. Chapter One, Page One, Paragraph One. What is the answer to 99 out of a hundred questions? Money.” If we surveyed 100 homeowners of all ages and socio-economic classes from across the country and asked them what first-time home buyers should know before starting the homeownership journey, we would get a lot of answers involving money. A LOT. Maybe not 99, but the vast majority of answers would be about money – savings, monthly payment, interest rates, closing fees, mortgage insurance, and the cost of house maintenance.
The problem is the question and the answer do not have any context. Savings matter, but the down payment is dependent on the listing price and, therefore, the loan amount. The monthly payment is fully dependent on ever-changing variables throughout the real estate & loan process. Interest rates. Points. PMI. Closing fees. All are estimated or “floating” until they are not. Typically the actual cost is the last thing we confirm with the consumer (i.e., 3 days before closing). The cost of house maintenance is perhaps the biggest unknown of them all – varying from home to home.
The context that every first-time home buyer should know (as early as possible) is what home loan their personal financial situation qualifies for at that time. Real data with real-time insights. Not indicative pricing IF x, y, and z are true, but their own financial picture as an available loan type and amount. Everything else we are asking first-time home buyers to do during the process presumes they know much more about their own financial situation than they really do. Today, the #1 thing consumers care about is the monthly payment. Given the process, it’s the last thing we actually confirm. And then we point to “the way it works” as if that means we do not have to do better. For instance, a common complaint from our industry is that first-time home buyers wait too long to get pre-approved. While true, today, I suggest that’s because we’ve failed to provide any value earlier in the process. Too early, and real estate agents & MLOs, alike deprioritize “early” first-time home buyers in favor of other leads. We send them elsewhere either explicitly or implicitly, and then we wonder why more consumers do not get a fully underwritten pre-approval. As if a consumer will know the exact moment when they are far enough along to justify a MLO’s time but not too soon where other leads take priority. Tomorrow, trusted brands and trusted experts (like MLOs) should be able to provide immediate, real-time product and pricing for any consumer at any point on their path to homeownership. Based on market research as well as evidence from other financial products (e.g., credit cards, buy-now-pay-later), consumers will happily share their real data if the benefit and value are tangible and relevant.
Shopping for a home
If we could provide consumers with their actual credit options as early and as often as they wanted, shopping for a home would get turned upside down. For starters, consumers could shop listings based on actual monthly payments instead of list prices. Real estate agents could rely on the consumers’ interest and ability to close because their data is real and up-to-date. Theoretically, consumers could make better choices about how much home to buy if we were better able to provide comparisons between homes. I know the conventional wisdom is that all consumers max out their budget, but we also have not given most consumers the right tools to understand the all-in implications of maxing out a budget on the first home versus building up equity versus upgrading to a move-up home someday. Technology is equipping MLOs to remain experts, but we need to do better with the consumer’s real data as early as possible to be truly effective.
Getting pre-approved
Almost every loan officer will tell you that consumers need to be pre-approved by a real underwriter to have the best idea of the max loan amount and make the strongest offer on a home. If I only had 5 seconds to explain the most important thing for a first-time home buyer, I advise getting pre-approved with a real underwriter as early as possible. But if I had more time to explain the context, my advice would be to get pre-approved prior to beginning a home search and finding a real estate agent. Unfortunately, that’s the best we can really offer today. Going forward, we have to continue to provide you (the MLO or the trusted brand) with better and better ways for consumers to start early and work into their first home. I like to call it perpetual underwriting; I have heard others call it proactive finance. The bottom line is that everything from financial literacy to pipeline efficiency improves when we can align the moment the consumer is focused on the goal with the data we have & the value we can provide. Imagine delivering more context for the FICO score or more ways to save or obtain down payment funds because the consumer is actually working on their homeownership dashboard in real-time. Pre-approval goes from being a pain point to being the industry’s biggest strength.
Making the strongest offer to the seller
Regardless of whether the consumer gets a full approval early on in the process or just in the-nick-of-time (usually on a Friday night, amirite?), I think we all agree a buyer’s agent can use a real pre-approval to improve an offer to the seller’s agent. The biggest obstacle that still erodes trust in the real estate industry today is the quality and dependability of a pre-approval. There are so many variations, from prequals masking as pre-approvals to actual underwritten files, that it has been difficult for our referral partners to know which is which. Using more real data, we should be able to reframe the pre-approval someday soon as an “as good as cash” offer. In fact, I think most of us in the industry could argue some pre-approvals are better than cash because we have all seen the cash buyer fail to get the money together on time or take too long getting their finances in order (not to mention the variations in inspection and appraisal that can occur with cash buyers). Cash is still king, for now, but we must deliver consumers a more reliable approval if we want to realize the future I am describing. Using real data allows the consumer to be more confident and the real estate agent to access the same level of certainty as the consumer and MLO.
Building up equity faster (and spending less on your home)
As I alluded to earlier, another reason first-time home buyers benefit from understanding their credit offers earlier and earlier is the opportunity for MLOs to become advisors to the real estate asset and not just loan providers. I’m sure, without having read it, that Dave Savage will write almost the same thing when it comes to why consumers should seek out a professional, expert MLO. Like anyone competing in the wholesale channel today, mortgage brokers want to be seen as the expert and trusted source for both consumers and agents. In order for that advice to be truly trusted, consumers have to start seeking out the experts earlier and earlier. To get there, we have to make the connection between starting with the financial data (can I afford a home?) and doing better than online calculators, lead gen blogs, and whatever advice Uncle Joe is giving out at the family BBQ.
Selecting the right price point to shop has a massive impact on future wealth. When I was at Rocket Mortgage, it was clear this is not necessarily intuitive to many consumers. I think most people believe a more valuable asset today will end up being a more valuable asset in the future. This conclusion leads most first-time home buyers to max out their buying power. The reality is that the value of the asset depends greatly on the number of years in the home. What’s more, the way a homeowner intends to spend money on the home (or not) also changes both cash flow and equity position. Right now, few consumers are getting that context during their pre-approval, and even fewer are using it in their ultimate purchase offer. Aligning the incentives to get pre-approved with the value and insight we can provide is the key to turning the homebuying process on its head.
Optimizing other financial products in context
Finally, using consumers’ real data for a pre-approval is just the start. Lasting value that becomes lifelong trust is achieved when we can use real data at the point of entry AND throughout the homeownership journey to provide other financial products (and offers) in the context of a holistic financial picture. The max loan amount, which is one of the foundational data points of this whole thought process, is also highly dependent on other debts and obligations in the consumer’s life. As both income and debt (think student debt) continue to become more complex (think multiple sources of variable income), giving the consumer more than just a mortgage preapproval-in-a-vacuum will be the ante to play. Consumers will expect any credit offer to have taken into account their whole situation. Gen Z looks at the traditional mortgage process and says, “It’s just math. Tell me my buying power and monthly payment.”
The future is coming.
It’s data-driven, real-time access to a personalized credit offer at any stage of the homebuying journey. If you want to be a part of that future, we have to start today with the earliest possible pre-approval that provides immediate value to the consumer and then evolves with them as they shop. More holistic, real-time data at the point of need. That way, instead of answering 99 questions about money, we can simply ask the one question that matters – which one of these homes did you pick?
Overcoming the Emotional Readiness Gap to Homeownership
Jacqui Cosgrove, Founder of Kore4Capital
I want the new, first, or hopeful borrowers of the future ™ to know that Homeownership and the Homebuying Journey is an emotional process, and it can be scary. Further, I want to reassure prospective applicants that programs and people exist to hold our hands and allow us to feel all those emotions while still achieving that dream of homeownership.
In 2020, HBCU students were surveyed by housing practitioners at a roundtable and reported their #3 perceived barrier to entry to homeownership was not a policy reality; it was an emotional reality. Specifically, “It’s not possible for me to be a homeowner” was the #3 barrier to entry AFTER credit education and lack of down payment assistance. This emotional homebuyer readiness sentiment/fear is also captured in the 2017 seminal paper from the Urban Institute on “lower or average credit score borrowers”(1) dropping out of the application process altogether. This emotional “readiness” gap is set to contribute to a dearth of eligible homeowners by the year 2030(2).
In listening to homeowner journeys over the years, The Fear of “Am I ready? Is it for ME?” is Real. At 24 years old and as a single woman, I purchased my first home, a condo. Per applicable title laws, my closing papers read, “Jacqui Cosgrove, an unmarried woman” on the signature line. For me, this signaled, “I have no backup plan. If I mess this up, it’s all on me.” As if the nail-biting approval process was not enough, at the final stop, I was afraid. I. Was. Scared.
The broker told me at closing to reassure me, “It’s totally normal to be afraid.” I wish that had been said to me at the beginning. I suggest that all practitioners continue to build that heart of hope, understanding the emotional cycle of “what-ifs” and “Is it possible for me” into your pre- and post-closing resources and support protocol.
(1) https://www.urban.org/sites/default/files/publication/88281/lower-credit_mortgage_applicants_are_dropping_out_of_the_market_final_1.pdf
(2) https://www.urban.org/research/publication/headship-and-homeownership-what-does-future-hold