Despite years of recovery and stabilization, as well as increased demand for housing purchase loans, mortgage credit remains tight today. In fact, according to the Mortgage Bankers Association, mortgage credit availability decreased 2.4 percent this past December, after a 0.8 percent decline in November.
These numbers are particularly disheartening for potential homebuyers with less-than-perfect credit as their needs are not being met by many mortgage providers. But savvy real estate agents can help these borrowers get into the homes they desire if they are aware of the solutions being offered by some lenders.
Loans going to narrow market segment
Although many indicators are pointing to increased interest in purchase loans, the loans are going to a relatively narrow segment of the market.
According to a recent report from Black Knight Financial Services, this past June marked the highest level of purchase lending since 2007, but these originations were driven primarily by high-credit borrowers.
In fact, in the third quarter of 2015, just 20 percent of purchase loans went to borrowers with credit scores below 700, the lowest level in more than 10 years.
Black Knight also reports that the weighted average credit score for purchase mortgages has hit a high of roughly 755. Many potential homebuyers have credit scores well below 700; in fact, the average credit score in the U.S., according to a recent report from Credit Sesame, is 625.
That means that millions of people who want to buy their own home might have difficulty securing the financing they need with today’s lending standards.
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Alternatives to tight credit profiles
Real estate agents should be aware that there are alternatives to the tight credit profile of conventional bank lenders. In fact, some mortgage lenders are now adjusting their credit standards to meet the needs of borrowers with credit that is less than perfect.
Most real estate agents are aware of the options offered by the Federal Housing Administration (FHA) and its mortgage programs. FHA loans help many credit-challenged borrowers, particularly first-time homebuyers, and some lenders have lowered their minimum credit requirements to as low as a 550 credit score.
But buyers might need help knowing that such lenders exist, and that’s where real estate agents with a strong knowledge of the marketplace can press their advantage.
Agents should be aware of which lenders offer what programs so they can help point potential buyers in the right direction and encourage them to seek out lenders and programs that might provide financing when they thought it was hopeless.
In addition to lenders with expanded guidelines on FHA, U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans, agents should look for lenders with specialized programs for borrowers with lower credit scores.
Not only will these lenders have various programs and guidelines to help borrowers get the mortgage they need, but these lenders will also have experience in underwriting and servicing loans of this kind, making for a better mortgage experience for their clients — and quicker closings for agents.
Programs to help clients with challenging credit
In addition to looking for lower-credit-score requirements, real estate agents should look for programs that will help clients with challenging credit.
Seek loan programs that offer no closing costs or upfront financing fees; this can be especially useful for potential buyers with little cash on hand. Loans that cover appraisal fees, lender financing fees or other unanticipated lender costs can be especially beneficial to this segment of the market.
Also, look for lenders that offer educational tools and services, which can help first-time and credit-challenged buyers prepare for the realities of homeownership. A helpful and satisfying mortgage relationship means happy homeowners, which will only reflect well on their real estate agents.
Many lenders that offer these types of programs are considered unconventional or alternative lenders, and some consumers might be unfamiliar with their offerings.
By being knowledgeable about the non-bank and non-prime offerings available in today’s marketplace, real estate agents can better help more potential homebuyers get into the homes they desire — and help themselves by working with a largely untapped sector of the market.
Ray Brousseau serves as executive vice president for Carrington Mortgage Services Mortgage Lending Division. Please follow Carrington on Twitter or LinkedIn.