Rethink Educating and Nurturing First-time Homebuyers

This week, Jeffrey Walker recommends 3 co-pilots to assist loan officers digitally deliver customized consumer education and Brian Vieaux provides a blog that explains to first-time homebuyers the benefits of paying mortgage insurance to buy now with a lower down payment.

Revolutionizing Mortgage Advice: Digital Co-Pilots for Loan Officers

Jeffrey Walker

CEO & Co-Founder of CredEvolv

Mortgage loan officers aren't perfect. Although they play a critical gatekeeper role in the financial education of consumers, it's virtually impossible to expect that 80,000 loan officers can effectively guide first-time homebuyers, veterans, borrowers looking to take equity out of their home or those seeking to improve cash flow 100% of the time. I've learned over nearly a three-decade career leading mortgage sales organizations that certain myths have a way of impacting how the loan officer (aided by the media) conveys product value to consumers. For example:

• FHA is the best choice for first-time homebuyers because they alone offer low down payments and low FICO gating scores
• Consumers must have to have a 20% down payment to get a mortgage
• Down payment assistance is only for low-income borrowers
• Credit-challenged borrowers should take a mortgage product with the lowest credit score requirement?

?These are just a few examples of ways a loan officer can unwittingly fall into the trap of recommending a sub-optimal solution for their consumer. And let's be frank, there is a perception among some that loan officers care more about the commission than they do about setting the consumer up for lifelong success. ?So, while loan officers are not perfect, there are market-ready solutions that can help them be the best consumer advocates possible. When it comes to educating consumers about their options, it's time for a better model. One that leverages the experience and knowledge of the loan officer but is not wholly dependent upon them. ?

?Here are three examples of how digitally delivered customized consumer education is serving as a loan officer co-pilot to the benefit of consumers:

Monster Lead Group, a data-driven direct mail mortgage marketer,?observed database behaviors that could only be attributed, statistically, to consumers not being exposed to all their options.?This led them to build two educational products, one consumer facing and one for loan officers, to bridge the information gap. Consumers interact with their data and options, allowing them to take agency over these options by pre-populating multiple benefit scenarios they can adjust for different outcomes. By delivering the same outputs to the Loan Officer (and unprecedented consumer insights), Monster empowers the consumer, provides transparency and engenders trust between the consumer and Loan Officer.?

FinLocker works along-side loan officers to leverage consumer-permissioned data and proprietary analytics to deliver personalized financial journeys (homebuyer education, credit education, post-purchase education, etc.). This holistic approach enables consumers to achieve and sustain homeownership while allowing loan officers to serve more consumers efficiently and at scale. ?

CredEvolv helps loan officers keep credit and debt-challenged consumers in their pipeline by offering an AI and machine learning-based 'not yet' instead of a 'no.' Their customized digital blueprint helps consumers realize that success is possible and that they are not alone, and they take the heavy lift of credit education off of the loan officer without asking the loan officer to give up control of the relationship. ?

Bottom line - even the most experienced loan officers can serve more consumers, build deeper empathy, and generate better consumer outcomes if they are open to partnering with innovative education experts.

Explain to First-time Homebuyers the Benefits of Paying Mortgage Insurance to Buy Sooner

Brian Vieaux

President & COO of FinLocker

Here is a blog to share with your consumers that explains the advantage of buying now with a lower down payment and paying mortgage insurance, and the difference between PMI and MIP. You can also create videos for each advantage and another video that explains the differences.

Title Options:

Mortgage Insurance: Your Key to Homeownership Sooner

Mortgage Insurance Explained for (Your State) Homebuyers

For many first-time homebuyers, the idea of paying Mortgage Insurance (MI) can seem like an extra financial burden. However, rather than viewing MI as a deterrent, first-time buyers should consider the advantages of purchasing now with a low down payment and paying MI, rather than waiting to save for a 20% down payment.

For those not familiar with the term, Mortgage Insurance is a monthly fee that protects the lender if you default on your mortgage. It is typically required when a homebuyer puts down less than 20% of the home's purchase price as a down payment. Conventional “conforming” loans and FHA loans differ on mortgage insurance requirements.

Differences Between Mortgage Insurance on Conventional and FHA Loans

Conventional Loans: With a conventional loan, Private Mortgage Insurance (PMI) is typically required when the down payment is less than 20%. PMI is calculated based on the home price, loan amount, down payment, and your credit score. It’s common for homebuyers to put 3.5% to 5% down on a conventional loan. While the amount you pay for PMI can vary, Freddie Mac, one of the government-sponsored entities (GSEs) that backs conventional conforming loans, says you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.

Once the loan-to-value ratio reaches 80%, borrowers can request to cancel PMI. Borrowers don't have to make additional payments to reach the 80% equity. An increase in the home's value, either through renovation or home prices, can also contribute to the value. Lenders cancel PMI automatically once 22% equity is reached.

FHA Loans: FHA loans require both an upfront mortgage insurance premium (MIP) of 1.75% of the original loan amount and an annual MIP of 0.85%, which is recalculated every year. The annual fee is divided into 12 payments and added to the monthly mortgage payments.

If the down payment is less than 10%, the MIP annual fee remains for the life of the loan. If your down payment is 10% or higher, the annual MIP requirement ends after 11 years. Once at least 80% equity is reached, you will need to refinance to a conventional mortgage to remove the MIP.

Here's why you shouldn't let mortgage insurance deter you from becoming a homeowner.

4 Advantages of Buying Now With a Lower Down Payment

The sooner you purchase a home and start building equity, the sooner you can start realizing the financial benefits of homeownership. These include locking in your monthly housing payments, tax benefits, and taking advantage of potential home price appreciation.

1. Immediate Entry into the Housing Market:

Let's say you want to buy a $400,000 home and have $20,000 saved for a 5% down payment. With MI, you could buy that home today rather than waiting another 2-3 years or more to save a full 20% down payment. Home prices could continue rising during that time, potentially making homeownership even more unattainable.

2. Building Equity Over Time:

While a larger down payment can reduce monthly payments and eliminate the need for PMI, it also means waiting longer to build equity in the home. Equity is the difference between the market value of your home and the amount you owe on your mortgage. With a lower down payment, purchasing now allows buyers to start building equity immediately as they pay down the mortgage balance over time.

3. Flexibility with Savings:

Saving for a 20% down payment can tie up a significant amount of money, potentially delaying other financial goals such as saving for emergencies, retirement, or other investments.

Opting for a lower down payment and paying PMI allows buyers to maintain more flexibility with their savings, allocating funds to various financial priorities.

4. Potential Tax Benefits:

Depending on individual circumstances and state tax laws, mortgage interest and PMI payments may be tax-deductible, providing some financial relief for homeowners.

While mortgage insurance is an added monthly cost, it can be well worth the investment to stop renting and start building equity as a homeowner sooner. With home prices expected to continue rising, it often makes more financial sense for first-time buyers to purchase now with PMI rather than waiting a few more years to save 20% down.