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Opinion: Are lenders dropping the ball on homebuyer assistance?

Buying a home is stressful in any market. Now, with inventory levels at historic lows and median home prices at historic highs, the purchase climate has become a Thunderdome. Nearly one in four recent homebuyers scheduled extra therapy sessions to cope with the stress, according to a recent Realtor.com survey. Homebuyers are also seeking information about another possible source of relief: homebuyer assistance programs.

From Multiple Listing Services (MLS) to consumer-facing giants like Zillow, Realtor.com and Redfin, the real estate industry is raising awareness about homebuyer assistance programs through agent education and self-service tools that help consumers find programs they qualify for.

While real estate professionals are perfectly positioned to introduce homebuyer assistance as a concept, home financing is not their schtick. So, they have taken what I like to call the “ask you doctor” approach, where they advise homebuyers to ask their “doctors” (a.k.a. their lenders) if homebuyer assistance is right for them. With hundreds of thousands of people engaging with online homebuyer assistance tools per day, it is time for lenders to get up to speed on these programs to help clients determine if homebuyer assistance is right for them.

Is winning offers with homebuyer assistance even feasible today?

An unfortunate, though common, misconception among lenders is that purchasing a home with homebuyer assistance is not feasible in the current competitive market. In fact, well over half a million people purchased homes with the help of these programs in the last year.

What’s more, there is an abundance of homebuyer assistance programs available to meet borrower demand. In Q1 2022, there were 2,238 active homebuyer assistance programs nationwide — a figure that includes down payment and closing cost programs, Mortgage Credit Certificates and affordable first mortgages — with at least one program available in each of 3,143 U.S. counties and 10 or more programs available in more than 2,000 U.S. counties.

There is consumer demand for homebuyer assistance. There are programs to support the demand. And, importantly, financing borrowers with homebuyer assistance is good for business.

The business case for offering homebuyer assistance

An analysis of declined loans by Down Payment Resource found that nearly a third of all turndowns could have been converted to closed loans had homebuyer assistance been used. By simply putting homebuyer assistance on the table, lenders could potentially close 30%+ more units. And better still, this low-hanging fruit can be gathered by capturing leads that lenders have already gone through great pains to get through the door.

Beyond furnishing a significant revenue opportunity, homebuyer assistance also ingratiates lenders with real estate professionals. This signals a huge opportunity for lenders in a purchase market where relationships with real estate professionals, especially buyer’s agents, are king.

One of the most frequently asked questions I get from real estate professionals is, “Can you tell me which lenders offer homebuyer assistance programs?”

Inventory constraints and rising prices are making it more difficult than ever for buyer’s agents to help homeshoppers move into homes they love. As a result, agents are eager to connect with lenders who not only offer homebuyer assistance, but whom they can count on to explain these programs and facilitate a smooth financing experience.

In today’s marketplace, every lender needs a superpower, and this one is in demand. What’s more, financing with homebuyer assistance is a relatively uncontested market space, since so many loan originators are inhibited by their fear of the unfamiliar.

Aside from being the right thing to do, helping borrowers become homeowners with homebuyer assistance puts lenders at the nexus of a transformative financial milestone that creates loyal customers for life.

To understand why borrowers who are eligible for homebuyer assistance may be so appreciative of a lender that provides a winning financing game plan, consider their circumstances. Having recovered from the economic setbacks of the Great Recession, a large cohort of Millennial homebuyers are entering the market with solid income and a demonstrated ability to pay — only to have their dreams dashed. As housing prices surge in communities of color, many are trying to get a toehold in the door before getting priced out.

First-time and traditionally underserved homebuyers are distraught right now not because they are missing out on some abstract American dream of homeownership, but because they are losing out on their best opportunity to sustainably grow wealth.

Homeownership is the primary vehicle for wealth-building in the United States, where the average homeowner has a net worth 40 times greater than the average renter. Many homebuyers today are watching in agony as a narrow window of opportunity for financial security closes just outside their reach, maybe forever.

What to do

As housing finance professionals, we have a significant impact on fund-strapped borrowers’ ability to attain homeownership, and we must strive to be informed about the affordability programs available to borrowers in our markets. Though homebuyer assistance programs are no panacea for the affordability challenges facing consumers, they are an important tool for giving qualified borrowers a boost into homes.

When homebuyers lose handfuls of bids to cash offers, it’s easy for them to get discouraged. It’s critical that lenders encourage them to remain persistent, because home prices and rent are only going to continue to rise.

In uber-competitive markets, winning offers for borrowers who don’t have stores of cash on hand to cover appraisal gaps may require difficult conversations where expectations on neighborhood and purchase timeline need to be reset. When mortgage professionals have these talks, it’s important that borrowers understand the cost of waiting. Appreciation will likely outpace borrowers’ ability to save, and interest rates and inventory challenges are very unlikely to improve in the immediate years to come.

Instead of spending years saving up to increase cash on hand, lenders should help homebuyers finance with a down payment assistance program, of which there are thousands. It’s a common misconception that homebuyer assistance programs are only for low-income borrowers, first-time homeowners and properties with sales price limits. In truth, there are a plethora of programs designed for people of color, veterans, community heroes such as firefighters and nurses, and more.

Borrowers in need of homebuyer assistance are no longer a niche market segment. With home prices soaring at an unprecedented pace, borrowers who would benefit from homebuyer assistance now represent a significant market segment unto themselves. Especially as refi volume evaporates and purchase volume shrinks, it is crucial that lenders offer relevant lending programs in order to capture every fundable loan.

Rob Chrane, Founder and CEO, Down Payment Resource.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
Rob Chrane at [email protected]

To contact the editor responsible for this story:
Sarah Wheeler at [email protected]

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