TheMReport — News and strategies for the evolving mortgage marketplace.
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32 | M R EP O RT FEATURE T oday, first-time homebuy- ers make up a significant segment of the market, accounting for more than half of all purchase mortgage borrowers. For the third consecu- tive year, the number of first-time homebuyers exceeded two million. The size of this group is unprec- edented, and this segment of the market simply cannot be ignored. As large as the actual first-time homebuyer market has been over the past decade, a thoughtful and concerted effort by the housing industry to better reach, inform, and interact with potential buyers could make this segment of the market even larger. With the number of first-time homebuyers in the market today, anyone in the mortgage lending industry can expect to encounter them on a daily basis. To pro- vide some perspective, in 2019, growth in the low-down-payment mortgage market was driven by conventional loans backed by pri- vate mortgage insurance, especially loans with a 3% down payment. To take it a step further, 90% of 3% down payment conventional purchase loans went to first-time homebuyers. Growth in that particular market has made the private mortgage insurance indus- try the leading source of mortgage credit enhancement for first- time homebuyers for the second consecutive year. Translated, the private mortgage insurance industry allowed lenders to finance 720,000 first-time homebuyers in 2019. With that said, it's important to know how each segment of the industry can best serve first-time homebuyers. We're currently living through times we haven't experienced before, and working together as an industry to continue to support first time homebuyers entering the market is very important. With that in mind, it's critical for mortgage professionals to deliver products and services that cater to those buying a first home. First- time homebuyers are focused on the overall experience and need to feel confident in making perhaps the biggest financial decision of their lives. The role of a mortgage originator as a trusted advisor is huge for this segment of buyers. Early Homebuyer Identification, Outreach, and Education T he first step on the way to better serving first-time homebuyers is starting early. For example, different software companies tout the capability to learn your customers' internet behavior to strategically place ads and pop-ups to point them toward a mortgage. Mortgage lenders can develop partnerships with other industry players to analyze and leverage the data at their disposal to help identify potential first-time homebuyers. The proliferation of sites like Zillow, Trulia, and Realtor.com, make looking for a home without actually "looking" a thing—and while these options are perhaps more comfortable for po- tential buyers, they are less helpful for lenders trying to build relation- ships separate from those sites. Once lenders target their out- reach, they should use those efforts to educate potential buyers on the homebuying process and loan qualifications to associate their firm with feelings of support and partnership in this new experi- ence. Lenders should take an active role in ensuring potential clients truly understand how the num- bers work before you put them all on a piece of paper for them. One piece of low-hanging fruit for lenders' marketing efforts: accord- ing to a recent survey by Bankrate, 28% of Americans still believe that a 20% down payment is the only way to achieve the dream of homeownership, which is simply not true. A 20% down payment is beyond what most first-time homebuyers can save before their peak household formation age of early to mid-30s. That is why, historically, a large majority of first- time homebuyers (80%) have used some form of low-down payment mortgages. On average, it would take the typical borrower at least seven years to save for a 20% down payment, which is understand- ably discouraging. While it is true that each individual situation may differ based on salary and credit as well as financial history, there are many finance options available to first-time homebuyers that don't meet the mythical requirement of a 20% down payment. From the Federal Housing Administration to Private Mortgage Insurance to Veterans Affairs and USDA loans, first-time homebuyers have more financing options and fewer financial obstacles to becoming homeowners than they realize. Building Affordable Homes A ffordability has been a big topic of discussion for a number of years, as the cost Meeting First-Time Buyers Where They Live From outreach to affordability to ease of use, anticipating and playing to the needs of millennials and other first-time homebuyers is critical to modern lending success. By Kevin McMahon