How credit unions can best help homebuyers overcome the down payment obstacle
Saving enough money for the down payment to buy a home has always been difficult. Today, the struggle still exists and is getting more difficult as home prices continue to rise. Despite nearly 90% of millennials stating they want to buy a home (according to Freddie Mac's Deconstructing a Generation, 2021), the Urban Institute tells us that 68% of renters cite saving for the down payment as a barrier to homeownership.
There are, of course, many purchase money strategies for credit unions to employ, but the best place to start is right at home — by using your education and portfolio capabilities to solve your members' challenges.
Because credit unions are so member-centric, they often spend a lot of time and resources educating first-time homebuyers and pre-approving them to buy homes — and they should continue to do so. CUs can expand on this strategy by focusing on underserved or growing communities within their geographic footprint. For example, the Hispanic community, based on recent reports from the US Census Bureau, has increased homeownership every year since 2014. And, this group accounts for over 40% of the overall growth in household formations, having added over 4.3 million new households.
In addition to education, you can offer a suite of high LTV products that solve many unique challenges your members face. Included in the suite of products could be the 97% LTV programs both Freddie and Fannie offer through several different programs, although some come with price increases and/or income limits that can affect eligibility.
You can offer service-retained 97% LTV loans to both Freddie and Fannie in several different programs, although some come with price increases and/or income limits that can affect eligibility.
To overcome some of those limitations, and serve even more members, many credit unions employ several well-priced 97% LTV portfolio programs in addition to the Agency programs.
These 97% programs are best designed to focus on specific challenges your members face such as: challenged credit, high DTI, or a higher loan amount in a high cost area. You can't solve for all these challenges with one loan program, so you should work with your Risk Partners to design individual programs that address challenges
This approach is the key to unlocking homeownership for many first-time homebuyers and provides multiple advantages to you as well.
Another important group of programs that help your members access homeownership are government sponsored such as Federal Housing Administration (FHA), and Housing Finance Agency (HFA) loan programs. In fact, many credit unions decide to offer a portfolio program that looks a lot like an HFA loan program, even allowing for up to a 105% CLTV so members may take advantage of the thousands of Down Payment Assistant programs available to them.
You could also pair these portfolio programs with an Intermediate ARM product, such as a 7/1, which works well for first-time homebuyers and would undoubtedly be more attractive to your CFO or CEO.
A full suite of high-LTV products that includes portfolio products that expand member options could clearly differentiate your offerings from other mortgage offerings your members receive on a regular basis. Plus, in addition to increasing your mortgage production, you'll also be able to increase your loan-to-share, attract younger members, and expand leads from the Realtor® community.