As a mortgage lender, people are your primary focus – you listen to their home buying goals and offer solutions to meet their mortgage needs. Today, more than ever, there is an incredible amount of diversity in the United States and it’s imperative that lenders offer a suite of mortgage products and programs that appeal to a wider segment of the population. Doing so provides more individuals the opportunity to become homeowners, and it also expands your business – a true win-win situation.
Determining which mortgage products and programs fit your customers’ needs will depend on many factors, such as location, age, income and more. It also requires you to be aware of trends related to the current housing market in order to offer the solutions that will help your customers become homeowners.
For 2018, the Mortgage Bankers Association (MBA) has predicted a 29% decrease in refinances as compared to the previous year – and a rise in the 30-year fixed rate mortgage interest rate to a 4.8% average (MBA Mortgage Finance Forecast, January 2018). These factors alone will have a significant impact in defining who the homebuyers of 2018 will be – and it’s up to you to adapt your business to remain a competitive force within the lending industry.
Defining Your Target Borrower
When it comes to diversifying your client base, you’ll first need to know exactly who your audience is. Taking the time to carefully understand the breakdown of your borrowers will help you tailor your suite of products and programs to meet each of their needs in a mortgage loan.
Nationwide, there is a significant differentiation between markets and it will be up to you to determine what the borrowers in your area need. Serving a borrower in Virginia Beach, Virginia will be quite different than serving a borrower in Knoxville, Tennessee. In Virginia Beach, the median income is nearly 50% higher than that of Knoxville – which could explain why there are fewer renters in Virginia Beach than Knoxville, where the renter population is currently 17% higher. These East Tennesseans may not feel as though they’re able to purchase a home if they don’t have a large down payment available and thus, settle for renting instead. This is why offering a full suite of mortgage options and marketing them effectively can help grow your business significantly. Working with a buyer who doesn’t have 20% to put down on a home? That’s not a problem if you offer a low down payment option such as an FHA loan– he or she can put down as little as 3.5% and be well on their way to homeownership.
Knowing your local market is essential, but it’s equally important to be in tune with what’s happening across the country – who is today’s homebuyer and how do they compare to the next generation? This will allow you to not only market your products effectively now, but will also prepare your business to assist future buyers. While the median age of homebuyers nationwide in 2017 was 40 with a median household income of $87,500, according to Zillow’s 2017 Consumer Housing Trends Report, favorable economic conditions are driving more Millennials to consider homeownership – and this generation tends to prefer urban areas and will sacrifice square footage if it means finding a place that fits their budget. Perhaps due to riddling student loan debt, a whopping 25% of Millennial buyers intend to put down 5% or less on a new home – another convincing reason why it’s important to offer mortgage products and programs that fit the needs of all buyers.
Offering the Right Mortgage Options for Your Audience
Once you’ve done your thorough research, you should have a clearer picture of who your audience really is and what their wants and needs are when it comes to home buying. Along the way you may have realized that the mortgage products your financial institution offers don’t quite fit your borrowers’ homeownership goals. The next step is to fully understand how all mortgage products and programs work and how you can market them to your target audience. For example, the options below may or may not be offered at your lending institution – but as you’ll see, incorporating them into your mortgage lineup could considerably expand your audience.
First-Time Homebuyer Loans
There are several loan types that fit the needs of many first-time buyers, including the FHA loan and the USDA loan. Both loan options are designed to help low-to moderate-income creditworthy families by offering mortgages with little-to-no down payment requirements (3.5% for FHA and 0% for USDA, respectively) and less restrictive qualifying criteria.
According to Brian Buffini’s 1st Biannual 2018 Real Estate Report, the FHA loan was chosen by over a third of first-time buyers. Lenders who offer the FHA loan have the opportunity to serve first-time buyers, which, according to Zillow’s 2017 Consumer Housing Trends Report, represent nearly 50% of all buyers.
The USDA loan is available to borrowers looking to purchase a home in rural areas. With 100% financing available, a quick search for eligible properties may offer a solution to first time buyers.
This FHA loan program provides an option to help those who lost their homes as a result of a natural disaster – in a Presidentially declared disaster area – get back on their feet. Certain parts of the country are more susceptible to natural disasters, making it worthwhile for these regions to offer the 203(h) loan to meet the needs of residents in a catastrophic event. For example, 2017 was a particularly rough year for hurricanes, leaving a trail of destruction in parts of Texas, Florida and Puerto Rico – many residents in these locations would have qualified for this loan program in an effort to rebuild their lives. As a lender, offering the 203(h) loans means you’ll be fully ready to serve the needs of your borrowers at a moment’s notice.
VA Loan & VA Renovation Loan
Offered exclusively to veterans, active duty military and their families, the VA loan program allows lenders to offer an affordable option of up to 100% financing available for these individuals. Additionally, a VA Renovation loan option provides borrowers up to an additional $35,000 for renovations and repairs, which may be imperative for disabled veterans returning from duty with a service-related injury. For many individuals, a barrier to homeownership is affording the down payment, so lenders who provide a VA loan option – especially in an area heavily populated by the military – can significantly expand their customer base.
Forging a Path Toward Meeting Your Borrowers' Needs
As our society evolves and becomes more diverse, it’s more critical than ever to expand your mortgage options to meet every borrower’s needs. Selling or servicing only one type of government-sponsored enterprise (Fannie Mae, Freddie Mac, Ginnie Mae or Federal Home Loan Bank) is no longer sufficient if you aim to increase your market share. Offering a greater variety of loan options means you’ll have the ability to provide a greater segment of the population with the opportunity to reach their goal of homeownership.
In order to fully serve the needs of your borrowers, there are several ways in which you can proceed. Working with a correspondent lender or broker that will ensure your borrowers are properly served will allow you to have direct access to investors without additional overlays that constrict your access to the secondary market.
Understanding your audience and their needs are important for determining how to best reach them, of course, but it’s also even more critical now with the recent updates to the Home Mortgage Disclosure Act (HMDA). In fact, rather than simply providing the required data to your regulator, why not use it to judge the effectiveness of your focus on diversity? The information you have before you can help you see if you’re on track or if there’s room to reevaluate who your audience is and how to best reach them. In the end, painting an accurate picture of your target borrower will help you remain competitive within the lending industry.
*This article originally appeared in the March 2018 edition of National Mortgage Professional Magazine.