For 84% of Americans, owning a home is a part of their American Dream. Unfortunately, over 50% doubt that they’ll ever attain this milestone. Underserved borrowers, in particular, have more obstacles in their way, from higher rates of loan denial to fewer financial resources.
As a mortgage lender, you have the power and expertise to help borrowers from all backgrounds get on a path to homeownership. You simply need to provide strategic support and education. For your efforts, you can expect to be rewarded with more business from the underserved communities you serve.
Below, we’ll explore the most common backgrounds of underserved borrowers and outline some statistics about their struggles. After that, we’ll offer three practical strategies for supporting these borrowers at every stage of their home-buying journeys.
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Exploring the Backgrounds of Underserved Borrowers
Underserved borrowers come from a wide variety of backgrounds – Black Americans, Hispanic Americans, Native Americans, veterans, and low-income individuals are just a few examples.
When it comes to homeownership, these borrowers may face the following hurdles:
- Historic discrimination
- Economic disparities
- Cultural and language barriers
- Lack of credit history
- Lack of financial education
Each population’s specific obstacles differ, but they all share a few things in common – underserved borrowers often lack the education they need to confidently pursue homeownership, and when they finally do apply for home loans, they’re often denied financing at higher rates.
Shiing a Light on Statistical Disparities
With today’s robust fair lending and credit regulations, you may assume that homeownership disparities have improved over time. Unfortunately, this isn’t the case. For some underserved communities, homeownership gaps have only gotten worse.
Just take a look at these statistics:
- The gap between Black and white homeownership is larger today than it was in 1968.
- Black borrowers are twice as likely to get denied home loans as their white counterparts.
- 32% of Arizona-based Native American applicants were denied mortgages, compared to just 8% of white applicants.
- Low-income households are 22% more likely to have their mortgage applications denied.
The Ongoing Echoes of Historical Discrimination
So, what’s causing these concerning disparities? While credit scores and debt-to-income ratios don’t see race or ethnicity, borrowers’ current circumstances are colored by their historical backgrounds. Just consider the one in four Hispanic homebuyers who completes their mortgage application process entirely in Spanish. If their lenders don’t provide sufficient Spanish-language support, these applicants are at an immediate disadvantage.
Next, put yourself in the shoes of the Native American applicants in Arizona. Many of these individuals grew up on reservations with limited access to financial services. As a result, they received less education and experience with credit. It’s no surprise that lack of credit history was the leading reason for these applicants’ denials.
Lastly, we can’t overlook the ongoing effects of historic redlining, a discriminatory practice that denied mortgage loans to Black borrowers. This practice stifled Black families’ ability to build generational wealth, putting today’s Black borrowers at a comparative disadvantage. Without comprehensive support from lending professionals, these underserved borrowers are unlikely to see increases in loan approval and homeownership rates.
3 Ways to Support Underserved Borrowers in 2024
While the current data paints a bleak picture, progress is possible, and mortgage lenders have an important role to play. As a lender, you can empower underserved borrowers with tailored support and timely education.
Here are three actionable ways to do just that:
#1 Amp Up Your Borrower Education
One of the biggest hurdles for aspiring homebuyers is a lack of understanding about mortgage-readiness and the home-buying process. From credit score improvement tactics to employment eligibility requirements, applicants have a lot to learn before they’re ready to buy a home.
Considering that 62% of Americans believe that you must put at least 20% down, expecting them to understand more complicated mortgage intricacies is a tall order. Knowledge gaps are even more pronounced with underserved borrowers, since their parents often have less experience with homeownership and therefore less practical advice to pass down.
With this issue in mind, creating educational content is the first step to bringing underserved communities up to speed.
How to Help
According to Housing and Urban Development (HUD) research, effective homeownership education should be easily accessible, provided early on in the home-buying process, and tailored to borrowers’ unique needs. Homebuyers who receive this type of education experience lower delinquency rates and fewer foreclosures.
So, what type of educational content should you create? Start by thinking about the questions and concerns that are most pertinent to your target audience. Some ideas include:
- Each mortgage program’s benefits and eligibility requirements – Did you know that only 30% of veterans are aware of the fact that they can qualify for a home loan without a down payment? VA loans also offer many other perks, from lenient credit score requirements to caps on closing costs. By breaking down the various loan programs, you can educate prospective applicants on their options and help them see that homeownership may be more attainable than they think.
- Down payment assistance (DPA) programs – Many cities, states, and federal agencies offer DPA programs for first-time home buyers. While nearly 80% of first-time homebuyers can qualify for DPA programs, only 13% use them, highlighting the need for more awareness among applicants.
- Credit-building tips and tricks – Low credit scores and lack of credit history are two of the most common reasons why applicants get denied by mortgage lenders. As a result, any information you can offer your applicants on how to improve their credit profiles can do wonders for their future approval rates.
Want to offer personalized credit improvement suggestions? Check out Certified Credit’s cutting-edge credit score improvement tools.
- Budgeting basics – Along with credit scores, DTI is an important metric for aspiring homebuyers to optimize. With consumer debt skyrocketing, teaching your applicants about their debt repayment options is crucial. While you’re at it, you can also offer suggestions for budgeting, saving, and increasing one’s qualified income over time.
- Home-buying guides – Buying a home is a complicated process – even for applicants with excellent credit and low DTIs. Thus, a detailed home-buying guide can help put your borrowers’ anxieties and confusion at ease.
Don’t have the time to create one yourself? Don’t worry! We’ve done so on your behalf at Certified Credit. Share our detailed First-Time Homebuyer Guide with your audience.
- Inspirational testimonials – While how-to guides can go a long way to educate prospective borrowers, testimonials may be even more compelling for on-the-fence applicants. If you have any borrowers from underserved communities in your portfolio, see if they would be willing to share their stories. They may inspire other borrowers with similar backgrounds to realize what’s possible for them if they take the right steps.
Once you have some topics in mind, you can explore them using a variety of mediums – blog articles, videos, podcast episodes, and webinars are all excellent options. When your content is ready to go, share it far and wide online. You never know when a LinkedIn connection or blog reader may stumble across it and choose you as their lender.
Note: Hispanic homeownership is expected to account for 70% of all homeownership growth over the next two decades. With that in mind, make sure to translate your educational content into Spanish and have some bi-lingual lenders on your team.
#2 Engage in Value-Added Community Outreach
Sharing educational content can help you cast a wide net online and attract more applicants, but in-person outreach can be even more impactful. Forging one-on-one connections with underserved borrowers gives you a chance to earn their trust and learn about the nuances of their home-buying hurdles.
Here are some strategies you can employ to facilitate these powerful connections:
- Reach out to community organizations – From veteran’s associations to tribal councils, it’s easy to find groups that bring people together from the underserved communities you wish to serve. After identifying these groups, reach out to them about your outreach initiatives.
- Host educational events – You’ll be more warmly received by these groups if you offer up your support and expertise. See if they would be willing to let you host an educational seminar about the current state of the housing market or a credit counseling workshop for their members.
- Engage with community members – During events, make sure to make your rounds and get to know individuals one-on-one. Ask about their goals, struggles, and concerns. The more you learn about your target communities’ challenges, the more you can tailor your support and resources to ensure their success.
- Offer ongoing support – Once you’ve established trust in these communities, let prospective applicants know that you’re always there to help. Your ongoing support can take the form of proactive prequalification, personalized credit counseling, or practical advice. You can also connect community members with other reputable real estate professionals, such as buying agents or insurance providers, when the time is right.
Your outreach initiatives may take more time to yield results, but the effort you invest will be well worth it. Outreach can expose underserved borrowers to options and opportunities they never knew about. Better yet, it can help you foster long-term loyalty with aspiring homebuyers who may become your borrowers down the line.
#3 Enlist the Support of Other Real Estate Professionals
The mortgage industry doesn’t operate in a vacuum, and neither should your efforts to support underserved borrowers. By bringing other real estate professionals on board, you can help make the entire industry more inclusive.
Here are some ways to put this tactic into action:
- Attend mortgage and real estate conferences
- Network with local real estate professionals
- Discuss the issues facing underserved communities
- Brainstorm collaborative solutions
At Certified Credit, we regularly attend mortgage conferences to engage with lenders just like you. Over the past few years, we’ve had the pleasure of speaking with many industry experts about the topic of underserved borrowers. Check out our podcast interview with Laird Nossuli during MBA Annual 2022: Housing Equity & Underserved Communities with Laird Nossuli.
Start Supporting Underserved Communities With Certified Credit Today
In summary, supporting underserved borrowers is an excellent way to increase your applicant pool and solve historic disparities that have no place in 2024. You simply need to offer tailored education, engage in community outreach, and join forces with other industry professionals.
If you’re looking for a partner in this plan, count Certified Credit in! We’re passionate about this issue and would love to support you in any way we can. In addition to our support and educational resources, we also provide a host of mortgage lending solutions that can help you save time and money, including:
- Affordable credit reports
- Automated lead generation
- Automated prequalification
- Automated verification of income and employment
- Automated undisclosed debt monitoring
- Flood zone determinations
- Automated valuation models
- Fraud and risk support
- Settlement services
Ready to help more borrowers achieve the American Dream? Schedule a credit consultation with Certified Credit today.
