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   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2015

To Serve and Educate

Working with potential homebuyers mired in challenging circumstances can grow your business

To Serve and Educate

In today’s real estate market, many mortgage originators are looking to find a niche upon which to focus their business. Perhaps the time has come to look at a market segment many overlook: the underserved.

Borrowers with lower credit scores and first-time homebuyers are often neglected by lenders because their loans may take longer to close or their financial situations may pose unique challenges in the mortgage process.

Savvy originators, however, can reach a broader market and grow their businesses by taking the time to educate and work responsibly with these underserved buyers.

Although working with ideal clients who have high credit scores, significant downpayments, and solid financial standing is every originator’s dream, these borrowers make up only a small part of the mortgage market.

Originators who want to increase their business should look at the market to find those who desperately need their expertise.

Market realities

According to the National Association of Realtors (NAR) annual survey released this past November, the percentage of first-time homebuyers in the market has dropped significantly. First-time homebuyers typically represent roughly 40 percent of buyers, but that number has declined in recent years.

According to the report, first-time home-buyers represented only 33 percent of the overall market in 2014, a 5 percent decrease from the previous year, and the lowest share since 1987.

As millennials struggle to combat rising rents and limited wage growth, household formations have also been declining. According to the U.S. Census Bureau, fewer than 500,000 new households were formed between March 2013 and March 2014. New household formation in the two previous reporting years averaged more than 1.25 million. These statistics show the effects of insufficient access to home loans for these groups.

In addition, tightened lending criteria have narrowed the market considerably since the financial crisis. More than a third of all consumers have FICO credit scores below 650, according to 2013 FICO data, which makes financing a home challenging for these potential homebuyers. With this in mind, some mortgage lenders have lowered their minimum credit requirements, extended eligibility to more property types and reduced overlays.

Partnering with lenders that offer such flexible programs is one key for mortgage originators working in this niche, because the underserved market needs mortgage support. According to the NAR survey, 88 percent of buyers financed their homes this past year, and this number jumped to a whopping 97 percent for younger homebuyers.


In addition to partnering with lenders that offer flexible loan programs, mortgage originators must help underserved clients understand their financial situation and how it will affect their homebuying ability. Despite initiatives to help inform the public and streamline the mortgage process, many consumers still don’t fully understand everything it entails. Information and education are critical to helping the under-served — and all homebuyers — understand their financial position and the loan products available to them.

Dedicated mortgage originators do their best to ensure all clients understand the financial realities of their mortgage obligations, but it can be difficult to know if clients are actually absorbing all that information. The first step for most potential homeowners is prequalification, and most lenders have prequalification tools on their websites, so borrowers curious to know how much house they can afford will start there.

This first step often sets borrowers on the path toward homeownership, so its importance should not be underestimated. For many new borrowers, this is the first time they will see their financial situation from the perspective of a lender, and it can produce unexpected results for unprepared borrowers.

This is where savvy mortgage originators should step in and help clients understand why they qualified for as much — or as little — house as they did. Buyers can then go look for a house that truly fits within a reasonable budget for their financial situation.


Although prequalification gives buyers a glimpse at what a mortgage will look like for them, it is typically just an approximation of their eventual mortgage. Once buyers find the home they wish to purchase, the process begins in earnest, and their mortgage originator can start putting together a mortgage package. This process is extremely complex, and despite the best efforts of originators, many homebuyers do not fully understand it.

As much as mortgage originators try to explain the process to clients, success is not always guaranteed. People learn in different ways and at different speeds, and it can be difficult to fit everything into one phone conversation or office visit.

That’s why it is critical to offer consumers additional education to better understand the mortgage process as well as the rights and responsibilities that come with owning a home. Today’s technology offers educational tools that homebuyers can use to get mortgage information at their convenience and at their own pace.

Imagine a tool that walks consumers step-by-step through the details of their loans to ensure they understand the terms and responsibilities. Going beyond the basics of transaction costs, principal amounts, terms, interest rates and monthly payments, this kind of tool also addresses what happens in the case of missed or late payments.

This technology can further help by reviewing borrowers’ current annual and monthly incomes, as well as outlining mortgage payment options and budgeting details, including non-housing-related living expenses and other monthly debts. Unlike general facts available from a Web search, this information is tailored to the consumer’s specific situation.

An educational tool like this can be invaluable to mortgage originators who are pressed for time or who struggle to describe the mortgage process in terms laypeople can understand. It is also invaluable to consumers looking to enter the homeownership arena who do not fully understand the complexities of the process.

Working with lenders that offer educational products is critical for originators who want to serve the underserved market. Having another tool to help inform clients not only gives you a leg up on the competition, it also creates satisfied clients who bring repeat business.


Although providing information is critical, mortgage originators also should offer simpler and more transparent products for underserved consumers who typically have less cash to close. All the technology in the world will not solve the financial challenges that underserved borrowers often face, but these issues can be resolved with better loan programs. If you want to serve the underserved market, partner with lenders that offer a variety of loan programs and terms.

Look for lenders that offer loans that can help consumers with lower credit scores and smaller downpayments. For example, some lenders offer simplified loans that have no lender closing costs for borrowers. With these loans, originators don’t have to modify rates presented to borrowers to offset loan costs and fees, and unexpected increases to estimated closing costs are not an issue.

In addition to finding specialized loan products, try to partner with lenders that have lowered their minimum credit requirements, reduced overlays, and extended eligibility to more property types. These lenders will best be able to help you serve consumers in the underserved niche.

•  •  •

In today’s real estate market, many potential homebuyers are sitting on the sidelines because they have yet to find a way to own a home. Tightened lending criteria and intimidating mortgage complexity have kept them out of the market — and off the radar for many mortgage professionals. Originators can help these potential homebuyers get off the bench and into the game.

Proper preparation and education will put consumers in the right place to connect with responsible lenders that are offering lower credit requirements and simplified loan products. By making a concerted effort to serve this underserved market, originators can help potential homebuyers become satisfied homeowners, and reap the rewards of working in this niche, because those satisfied clients will bring in referral and repeat business to the originators who helped them understand and navigate the process.


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