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How To Steer Around Homeownership Hurdles

Guiding prospective buyers through credit and down payment challenges

Mary Kay Scully headshot
Mary Kay Scully
Steer around hurdles

Not every prospective buyer that sits down at your desk will be ready to buy, but that doesn’t mean you should write them off. These prospective buyers are still an opportunity to grow a strong pipeline of future business. Connecting them with the right resources not only helps them prepare for homeownership, but begins a relationship that sees them return when they are ready to buy.

So, what might stop a prospective buyer in their tracks? Two of the most common roadblocks include credit scores and down payments. According to a recent survey conducted by FormFree, out of the top five biggest barriers to homeownership, insufficient savings for a down payment ranks at number two (after high home prices) and insufficient credit scores ranks at number four.

Whether it’s struggling to save enough for a down payment or issues related to their credit score, some buyers aren’t quite where they need to be to buy a home. Let’s talk about how you can help prospective buyers navigate these hurdles and help them get ready to buy.

Credit and Down Payment Challenges

Credit and credit scores are a vital component of qualifying for a home and determining mortgage rates, but that doesn’t mean all prospective buyers understand credit or know their own credit score.

According to the same FormFree study, one in 10 Americans have no idea what their credit score is, and two in 10 don’t know how to check their scores. A 2019 study by LendingTree found that nearly four in 10 Americans say they “have no idea” how credit scores work. Many homebuyers need assistance in understanding credit scores, the different scoring models, and even how their credit score factors into the homebuying process.

Down payments are another critical piece of the homebuying puzzle, and one that frequently makes potential buyers feel that homeownership is out of reach. Roughly 26% of first-time buyers stated saving for down payments was the most difficult step in the process, according to the “2022 Profile of Homebuyers and Sellers” by the National Association of Realtors (NAR).

The problem of saving enough for a down payment has led many borrowers to turn to friends and family for help. In fact, 22% of first-time buyers used a gift or a loan from friends or family for the down payment, states the same report from NAR. Of course, borrowers cannot use gift funds from just anyone. There are rules about who can be an eligible donor and how to document gift funds and these rules can be different for each loan program.

There are many small details that make a big difference when it comes to credit scoring and down payments. No one should expect borrowers to know all the ins and outs, so it’s up to the loan officer to help them.

Understanding Credit

Loan officers should be working with prospective homebuyers on their credit, specifically their FICO score, to make sure they are eligible to buy a home. There is clearly a large percentage of borrowers that do not know how credit works or how to build and maintain a quality credit score. Although some programs allow borrowers without a score to qualify, loan officers should be prepared to serve as a mentor on how credit scores work, how a score can impact their rate and program and what behaviors help make up the FICO score.

If you need a reminder yourself: payment history is 35% of a score, credit utilization is 30%, credit age is 15%, credit mix is 10% and new credit is 10%.

FormFree study

Educating borrowers on tools that monitor credit and how different behaviors impact their score is a critical piece of preparing them to buy a home. FICO Classic is currently the most important score for mortgages. Borrowers can use to monitor their score, and they can use to get their free credit report from each bureau once a year.

There are impending changes to credit scoring models in 2023 and beyond, however credit itself is not changing. Although some factors may be changing in credit scoring models, borrowers still need to pay their bills on time to keep or build a good score.

Down Payment Assistance Programs

Many first-time homebuyers still believe 20% down is required to buy a home and are not aware of programs available that either require less down or assist with down payments. As a loan officer, you should be prepared to explain the options available to your homebuyers.

Industry giants like Freddie Mac and Fannie Mae have down payment assistance tools and resources which may be a good starting point for borrowers. Also, many local housing finance agencies (HFAs) and community organizations have assistance programs. Keep in mind that programs will vary by location, and it is important that loan officers are educating their borrowers about the options that they are eligible for.

Loan officers serve an important role in making sure their borrower is ready for this major financial decision. It’s part of the job to make sure borrowers are educated on essential pieces like credit and down payment assistance programs. Providing guidance and resources helps borrowers understand their financial situation and can make their dream home a reality.

This article was originally published in the NMP Magazine November 2023 issue.
Mary Kay Scully headshot
Mary Kay Scully

Mary Kay Scully is the Director of Customer Education at Enact, leading the development of the company’s customer education curriculum. The statements in this article are solely her opinions and do not necessarily reflect the views of Enact or its management. 

Published on
Nov 02, 2023
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