As historically unprecedented economic, social and political circumstances converge in late 2022, the real estate market is quickly becoming purchase-dominated. While other volumes will continue to slow, the purchase market will exist as long as people need places to live (read: always and forever).
Unfortunately, these same circumstances have aligned in a way that is likely to scare first-time homebuyers away from purchasing a home based on misconceptions and lack of knowledge about their options. Some potential buyers may think home ownership is out of reach, mainly because of the barriers to entry associated with conventional loans. If a potential buyer’s credit score doesn’t qualify them for a conventional loan (or only qualifies them for one with a much higher interest rate than lenders advertise) or their income and commitments don’t support their ability to save the recommended 20% of the home’s purchase price, they may believe that renting is their only option.
However, when these same potential buyers are educated about the different types of loans available to them and compare their options against the rental market, they may realize that home ownership isn’t so far out of reach after all. A new report from Redfin found that the median U.S. rent surpassed $2,000 for the first time ever in May 2022, up 15% from a year prior. For lower-income buyers looking to finance a private residence, a government loan may be the perfect solution to the challenge of the ever-increasing cost of living.
Government mortgage loans are backed by the U.S. government, as opposed to private lenders, and fall into three primary categories:
- FHA loans: FHA loans are backed by Federal Housing Administration (FHA), and are the broadest option for expanding eligibility options for your members. FHA loans have lower credit score requirements, and allow borrowers to front as little as 3.5% of the purchase price as a down payment. FHA loans must be applied to a borrower’s primary residence and have a loan limit of approximately $420,000.
- VA loans: VA loans are sourced through private lenders but guaranteed, in part, by the Department of Veterans Affairs (VA). While they require zero down payment or mortgage insurance depending on eligibility, they are only available to active duty service members, veterans of the armed forces and/or their surviving spouses. VA loans must be used toward a primary residence and have a limit of nearly $650,000.
- USDA loans: USDA loans are backed by the United States Department of Agriculture (USDA), and are a great option for low- to moderate-income buyers looking to purchase a primary residence in a rural area. To qualify for a USDA loan, the home must be located in an area that the USA designates as rural, and the borrower must have a household income at or below 115% of the area’s median income.
As a credit union with a mortgage program, you are in a unique position to identify the members who may be ideal candidates for each of these government home loans, educate them about the differences between government and conventional loans, and offer them a full range of mortgage products.
Considering “the overall government-backed share of such home purchase loans, including FHA, VA, Rural Housing Service, and Farm Service Agency loans, was 32.9 percent in 2020,” (the latest available data) according to the Consumer Financial Protection Bureau and information from the Federal Financial Institutions Examination Council (FFIEC), you are missing out on a significant portion of the purchase market if you aren’t offering your members comprehensive mortgage solutions.
But for many credit unions, supporting government-backed mortgage loans isn’t as clear-cut as the market opportunity would imply. Common roadblocks include:
- The need to submit a costly supplemental financial audit
- Lack of in-house underwriting capabilities or resources
- Other institutional approval and ongoing maintenance requirements
- Inability to support the additional costs
How can a CUSO help?
One of the best ways to expand your mortgage program and begin offering government loans to your members is by outsourcing this expansion to a credit union service organization (CUSO) like TurHome. This does not mean you need to outsource the entirety of your mortgage program. Many of our credit union partners work with us as a third party only for those aspects of their mortgage programs that have these types of roadblocks.
TruHome is an approved FHA, VA and USDA lender that is well-positioned to help your members get the right government-backed loan right away, while keeping your brand front and center so members don’t lose that personal touch.
It’s time to think beyond conventional loans. Don’t let your members get their FHA, VA and USDA loans somewhere else. Bring them home with TruHome’s government lending programs.
Ready to learn more? Contact us today to ask questions about the benefits of partnering with TruHome.