Home prices have been increasing steadily for years, but those increases have been balanced by record-low interest rates.
As rates have recently begun to increase alongside prices, this rise has created affordability issues for potential homebuyers.
According to the First American Real House Price Index (RHPI), consumer homebuying power decreased 5.1 percent between November and December of this past year, and declined 2.1 percent year over year. This was coupled with real house prices increasing 6.2 percent in the same time frame.
To meet these higher prices, homebuyers are borrowing more to purchase the home they desire. In the week ending March 3, the average loan size for a purchase mortgage application as recorded by the Mortgage Bankers Association (MBA) was $313,300, the highest average recorded since the MBA started tracking the data in 1990.
This rise in affordability has become a critical watchword in the real estate industry — for real estate agents and mortgage providers alike.
With the continued increase in home prices, and mortgage rates also on the move, real estate agents are challenged with helping clients find affordable homes and lending partners that can make financing those homes a reality.
Bringing sideline buyers back into the game
Affordability issues are particularly critical to first-time and credit-challenged homebuyers, many of whom have been sitting on the sidelines of the housing market for far too long because of a lack of financing options. Many lenders have a variety of low down payment programs — 3 percent for conventional and 3.5 percent for FHA programs.
Lenders who specialize in VA loans can offer 100 percent financing. Additionally, potential borrowers should ask about Lender Paid Mortgage Insurance (LPMI) programs. LPMI programs provide a way to access conventional programs with less than 20 percent down, though they carry a higher interest rate.
Down payment assistance (DPA) programs are available on a city, county, state-wide basis and on an approved lender by lender basis. Lenders will often have their DPA programs available on their website.
Helping underserved clients
Real estate agents should be aware of the various loan products now available that just may be the answer for their clients to get into a home.
First-time and credit-challenged homebuyers often face similar issues when trying to qualify for a mortgage: down payments, cash for closing costs, and lower credit scores can mean higher interest rates, pushing a once-affordable home out of their price range.
Agents who work with the underserved market should arm themselves with knowledge about the different loan products that look to address these issues and the lenders that provide them.
Seek responsible lenders who are responding to this underserved population and making homeownership possible by lowering credit-score requirements, extending eligibility and creating loan products tailored to the unique needs of these borrowers.
Fees and costs
Look for products that feature no closing costs or upfront financing fees, which can help potential homeowners struggling to amass large sums of money at one time.
Lenders offering a wide range of financing options — from government loans to conventional mortgages — often are better equipped to serve each client as a unique borrower, versus automatically declining anyone with a credit score below 700.
Agents should also look for lenders that offer simplified loan products, which can help novice buyers through what can be a labyrinthine mortgage process. These products often provide streamlined services that can help move the financing process through quickly, an important ability in today’s competitive market.
Simplified loans also offer the added benefit of relieving some of the stress of a complex mortgage process for borrowers, making for happier homeowners — and happy clients, who are much more likely to refer family and friends to the agent who helped them achieve their dream of homeownership.
Although affordability is becoming more of an issue for many potential homebuyers, the market is responding. With the help of knowledgeable and resourceful real estate agents, potential buyers can become homeowners by finding the financing they need from lenders who are well-versed in the issues they face.
By partnering with lenders willing to work with this underserved market, real estate agents can help more clients enter the housing market before interest rates and home prices increase further.