- As lenders move away from zero- and low-down-payment loans, there are still programs for credit challenged borrowers. Agents should know the programs and partner with lenders who serve the underserved.
Although homeownership rates are still low — just 63.7 percent this past second quarter — several big players in the mortgage industry are pulling away from products that help homebuyers with credit challenges.
Earlier this year, Freddie Mac announced it was ending its zero-down payment loan options effective Nov. 1, and other large banks also have announced their move away from the market for borrowers with sub-640 credit scores.
Moves such as these give the appearance the market is turning its back on these borrowers, but real estate agents should be aware there are still programs available to help these prospective buyers purchase the homes they want.
In fact, these potential homebuyers represent a significantly underserved portion of the market.
Know the programs
Agents who know the programs that are available can help these often overlooked consumers become homeowners.
Despite Freddie Mac’s move away from zero-down-payment loans, there are still programs available to consumers who don’t have a lot of cash to bring to the table — allowing borrowers to get the zero- and low-down-payment mortgages they need.
Although they’ve been around for a long time, agents should be up to date with the latest offerings from government initiatives, including state down payment assistance programs and federally insured programs such as Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) rural development loans.
FHA loans are often the most widely used, representing 22 percent of all loans originated in August 2017, according to the Ellie Mae Origination Insight Report.
Although the average FICO score for conventional purchase loans this past August was 752, the average FICO score for FHA purchase loans was just 683.
Although the FHA allows for credit scores as low as 500, few borrowers are able to take advantage of this eligibility. In fact, only 1.43 percent of FHA borrowers in August had credit scores between 500 and 549, according to Ellie Mae.
Many lenders don’t loan to borrowers with credit scores in this range, making even FHA loans seem out of reach to some potential homeowners.
There are lenders that specialize in serving this market, however, and some have even recently lowered their credit-score requirements to 500 on FHA and VA loans.
By lowering the FICO score requirements, these lenders are providing greater opportunities for underserved borrowers to recover from life challenges and become homeowners.
Partner with lenders
Real estate agents who work with clients with low credit scores should partner with lenders that have extensive expertise in underwriting and servicing these types of loans, as well as lenders that offer programs that meet the needs of borrowers with a wide range of credit profiles.
And because buying a home isn’t as simple as just securing the mortgage financing, agents should seek out lenders that work to make sure their borrowers succeed.
Lenders that truly serve the underserved community not only offer loan products that work within borrowers’ financial constraints but also provide additional information and education to ensure homebuyers are in a sound financial position after they purchase a home.
Many potential homebuyers are sitting on the sidelines today because they have yet to find a way to enter into homeownership, either because they’re unaware of the lending options available to them or because they can’t find a lender that offers these programs.
By partnering with forward-thinking lenders that know credit-challenged borrowers can still be responsible homeowners, real estate agents can be ready to help more clients get into homes.
Additionally, by working with this underserved niche, agents are opening up a market for themselves that is rich in opportunity. As more lenders move to help these borrowers, more consumers will have access to home financing they didn’t have before — making the dream of owning a home an attainable goal once again.
Ray Brousseau serves as president for Carrington Mortgage Services. Please follow Carrington on Twitter or LinkedIn.
