Demystify Homebuying Jargon to Attract and Educate

Let’s say you and I were talking about a recent ad campaign that I just launched for a mortgage company. Throughout the conversation, I’m telling you about the “click-through rate,” the “ROAS,” and why I opted for a paid ads strategy instead of an organic strategy.

Would this be your reaction: ??

You bet it would be!

Now, let’s switch from marketing to mortgages.

Jargon. It makes your homebuyers’ eyes glaze over (even more so for first-time homebuyers).

So, how do we clear the haze? By injecting some simplicity and clarity into how we communicate to our borrowers.

Here are three ideas to try:

“Watch Your Language” (social media campaign): How about a midweek “Terminology Tuesday” or “Words Wednesday” where you break down those head-scratching mortgage terms. Lights, camera, clarity! Dedicate a day to streamlining a term that usually stumps.

“The Book Of Mortgage Jargon” (ultimate guide): Craft a fun, witty guide that pokes fun at complex mortgage vocabulary. It’s the Rosetta Stone for home buying - with a pinch of humor and a ton of utility. Share it as the initial icebreaker, the perfect primer for anyone starting their home-buying adventure.

“Your Journey To Homeowner” (streamlined email series): In bite-sized, easily digestible chunks, deliver a series of emails simplifying the home-buying journey. Think of this as your borrower’s weekly (or bi-weekly) espresso shot of mortgage knowledge. It’s not just about simplifying terms, but showing your commitment to creating an incredible experience for them.

Remember, in an industry muddled with terms, be the guide that offers clarity. Think less Encyclopedia Britannica, more Home Buying 101. Now, let’s elevate their experience from confusing to confident!

I think we can all agree the housing industry loves an acronym, but since down payment assistance (DPA) is our business, I’ll stick to what we do best. And, I’ll make sure to throw in some helpful acronyms and terms along the way.

Of the over 2,300 homebuyer assistance programs available in the U.S., 75% offer some form of down payment or closing cost assistance.

These programs are available through state and local Housing Finance Agencies (HFAs), city and county governments, employers, non-profits, land trusts and more. As a matter of fact, our latest Homeownership Program Index (HPI) revealed that 45 additional agencies stepped up to administer homebuyer assistance programs in Q2 2023 —?a 3.9% increase over the previous quarter. Over 1,300 agencies now provide assistance to aspiring homeowners across the country.

DPAs most often come in the form of silent second mortgages or non-repayable grants and offer several thousand to tens of thousands of dollars to eligible homebuyers. In addition to helping with the down payment, program providers often allow the funds to be used for closing costs, prepaid expenses, rehab or repairs (which can be particularly important to enhance a property or accommodate livability standards for disabled homebuyers), and even loan principal reductions. In response to market challenges, we’ve also seen a recent increase in the number of programs that allow funds to be used for temporary or permanent interest rate buydowns.

A common misconception about DPA is the idea that these programs are only for first-time homebuyers (FTHBs) when in fact 39.7% of homebuyer assistance programs in the U.S. have no FTHB requirement. Beyond that, most programs adhere to the Department of Housing and Urban Development’s (HUD’s) definition, which states you’re a FTHB if you haven’t owned a home in the last three years. And, many programs will waive their FTHB requirement for veterans, or if a homebuyer is purchasing in a targeted revitalization area.

As for additional criteria, the homebuyer must meet 1st mortgage requirements. If the DPA has income limits, they will be market adjusted, often based on calculations for the Area Median Income (AMI), and may range from 80% up to 140% AMI or higher. Since the property must qualify as well, purchase price limits may be applicable and are usually in line with HUD’s loan limits in each market, offering assistance at or beyond median home price values.

Ultimately, DPAs are available in every market across the country, and help homebuyers increase their purchase power by reducing the down payment burden. If you’re interested in finding out what’s available in your area, check out our free eligibility search tool to see what’s out there for you or your clients.

Government-Sponsored Enterprises (GSEs) are not just another set of acronyms in the world of home buying; these entities are fundamental to the stability of the housing market and play a significant role in making homeownership a reality for millions of Americans. Understanding their roles and missions can empower you as a homebuyer, enabling you to make more informed decisions and secure the home of your dreams with confidence.

What are GSEs? GSEs, short for Government-Sponsored Enterprises, are quasi-governmental organizations established with a specific mission: to enhance the flow of credit within the U.S. economy. While they do not directly lend money to the public, their impact on the housing market is substantial. GSEs achieve their mission by guaranteeing third-party loans and purchasing loans in the secondary market, ultimately ensuring that mortgage lenders and financial institutions have the necessary funds to support homebuyers.

Let's delve deeper into the three major GSEs regulated by the Federal Housing Finance Agency (FHFA):

Freddie Mac (Federal Home Loan Mortgage Corp.) was created in 1970 to promote affordable homeownership among the middle and working classes by expanding the secondary market for mortgages in the U.S. Today, it continues to fulfill this vital role by purchasing mortgages from lenders, which it pools and sells as mortgage-backed securities (MBS) to private investors on the open market. This secondary mortgage market provides lenders with liquidity to continue lending to prospective homebuyers for new home purchases.

Fannie Mae (Federal National Mortgage Association) was introduced in 1938 to improve the flow of credit in the housing market while reducing the cost of that credit. Like Freddie Mac, Fannie Mae purchases mortgages from lenders, allowing these lenders to free up capital and extend credit to more borrowers.

FHLBs, known as the Federal Home Loan Banks system, is a unique entity owned by over 8,000 community financial institutions nationwide. The FHLB system, established in 1932, plays a crucial role in providing stability to the housing finance market. FHLBs lend to the financial institutions, which, in turn, helps ensure that credit remains readily available for a diverse range of homebuyers, particularly in local communities, through smaller, community-based lenders.

Why should homebuyers care? Understanding the roles and functions of GSEs is important for homebuyers. These organizations indirectly impact your ability to secure a mortgage with favorable terms. When GSEs purchase loans from lenders, it encourages lenders to offer competitive interest rates and flexible mortgage terms to borrowers like you.

Additionally, GSEs promote stability in the housing market, making homeownership more sustainable. They help prevent market volatility, ensuring that you can confidently invest in a home, knowing that a stable housing finance system backs your investment.