April 21, 2023

Help Homebuyers Succeed with Education and Affordable Down Payments

Issues Facing Originators

April Is Financial Capability Month

Financial Literacy Month was established by Congress in 2004 to help consumers recognize, avoid and report fraud and scams. The name was changed to Financial Capability Month to fulfill an additional goal of helping consumers increase their understanding of the MyMoney Five principles:

  1. EARN — Make the most of what you earn by understanding your pay and benefits.
  2. SAVE & INVEST — It’s never too early to start saving for future goals such as a house or retirement.
  3. PROTECT — Take precautions for your financial situation and accumulate emergency savings.
  4. SPEND — Be sure you are getting a good value, especially with big purchases, by comparing prices and products.
  5. BORROW — Borrowing money can enable some essential purchases and builds credit, but guard against borrowing too much.

With all the challenges facing first-time homebuyers — including higher mortgage rates and a lack of inventory — are your borrowers prepared for the hurdles ahead?

April is the perfect time to consider the question since it’s near the peak of spring homebuying season and Financial Capability Month, formerly known as Financial Literacy Month.

Realistic Expectations = Success in Qualifying for a Mortgage

For many first-time homebuyers, a fuller understanding of the mortgage process is vital to qualifying in the current environment. Originators can make homebuying less stressful by setting the buyers’ expectations up front to help them find homes that meet their needs — and fit their budget. Many prospective buyers need help with three things:

  1. Understanding how their debt-to-income ratio impacts the mortgage amount and monthly payments they can afford.
  2. Calculating the total financial commitment of purchasing a home, including mortgage payments, taxes, insurance and maintenance — and the need to save for unexpected expenses.
  3. Expanding down payment options for borrowers who wish to pay less up front and leverage flexible options like gift funds.

Making Down Payments More Affordable

For many would-be homebuyers, saving for a down payment is daunting. In a 2022 LendingTree survey, 81% of non-homeowners said they’re “stressed” about saving for a down payment and more than one in five respondents say the down payment is “their only barrier to homeownership.” However, down payments are much lower than many current renters believe. In LendingTree’s survey, 41% of non-homeowners said lenders require 20% or more down. In reality, first-time homebuyers pay an average of 6%–7% down, according to the National Association of Realtors®.

MIHome from Arch MI’s comprehensive set of MI products and solutions allows down payment options as low as 3% of the purchase price. And with Arch Mortgage Guaranty Company (AMGC) coverage, homeownership is possible with even lower amounts.

In addition, flexible Arch MI guidelines allow for gifts, grants and housing types ranging from single-family homes to condos, co-ops, construction-to-perm and manufactured homes. Get all the details at archmi.com/MIHome.

Prepping Borrowers for Purchasing a Home

Arch MI’s Roadmap to Homeownership provides a comprehensive toolkit for originators to educate borrowers — one-on-one or in a first-time homebuyer seminar. Whether you host your event in person or use remote tools like Zoom, you can co-brand the Roadmap to Homeownership presentation with your logos and contact information. The Roadmap gives homebuyers the tools they’ll need, including:

  • Worksheets for calculating monthly income, debt payments, mortgage amount and mortgage payment.
  • Resources for borrowers to determine their credit scores and navigate the mortgage process.
  • Checklists for determining their best choices regarding the type of home, size and features for their lifestyle and budget.

Benefits of Homeownership

In addition to guiding first-time buyers through the purchase process, the Roadmap to Homeownership also offers opportunities to share key homeownership benefits:

  • While landlords can increase rents year over year, fixed-rate mortgages establish a predictable monthly house payment over the loan’s life.
  • Over time, each mortgage payment contributes to the equity that provides homebuyers with a valuable financial asset. The Federal Reserve reports that the median net worth of U.S. homeowners is 40 times higher than for renters.
  • Homeowners can customize their properties — by, for example, adding rooms for a family member or building a fence for pets.

As always, thanks for reading Arch MI’s Insights blog. If you’ve had success in helping guide homebuyers through the mortgage process this year, send us an email. We may include your comments in a future post.