To hear about mortgage misconceptions and the challenges that potential homeowners face in California, Finance Monthly talks to broker and owner of Mortgage Express – Carole Ryan.

What are the key misconceptions among buyers in relation to mortgages?

Buying your first home should be an exciting and fun endeavour, but I think a lot of potential first-time homebuyers are held back by misconceptions of the loan approval process and the fear they may not qualify. Two of the biggest misconceptions are that they need 20% down and perfect credit. But not anymore - Fannie Mae’s, HomeReady mortgages, and Freddie Mac’s

Home Possible® and Home Possible Advantage® mortgages are new and innovative conventional programs that bring a whole new set of underwriting guidelines to help more low to moderate-income borrowers realize their dream of home ownership. Down payments of 3%, FICOs starting at 620 with most lenders, and higher debt-to-income ratio’s in some circumstances.

Another change by Fannie and Freddie that took effect on 1 January 2018 will also help buyers buy more with less down. The conforming and high-balance loan limits were increased. Now buyers can put 3% down on loans of up to $453,100, whilst in high-balance areas, from $453,101 to $679,650, the minimum down is 5%. The bottom line here is that if you are seriously interested in buying a home, there are options out there to help your achieve your dream of homeownership. The only thing that you have to do is to take the first step - find a good lender and get preapproved.

What are the key challenges that your clients face before applying for a mortgage and how do you help them overcome them?

As a broker with over 25 years of experience in mortgage lending, I work with all types of buyers. I find that almost all of the clients that I advise face challenges revolving around what I call the BIG 3 - income, credit and funds to close. If we have a debt to income issue, we look at adding a co-signor, and/or paying off debt, or as a last resort - buying less. I help borrowers resolve minor credit issues that don’t keep them from getting a loan, those with major issues, I refer to a great credit restoration company I work with.

There are several solutions for funds to close. The easiest one being a “gift” from a family member, a lender credit, based on the interest rate chosen, a seller credit, a loan against or liquidation of a 401K, and of course a variety of down payment assistance programs.

What makes your company unique when compared to your competitors?

What makes me and my company unique is very simple - I’m able to provide incredible hands on service to my clients, built around their schedules and needs. Mortgage Express is my company and I handle all of the loans that I work on personally - from pre-approval to close of escrow. This allows me to oversee my files, keeping everyone involved in the transaction updated and being sure we’re always on track to meet the closing date. I meet with borrowers on-line in a unique screen share, based on the time of day, night or weekend that is convenient for them, whilst they can attend from the comfort of home. This allows me to show them, in real time, how their income, debt and assets affect the loan they can qualify for, as well as ways to restructure the loan in different ways, based on their needs. All of this as they watch, ask questions and request changes. It’s also a great opportunity for me to educate them about the processes we will be going through so they know exactly what to expect, including our time frame and the items I will need them to take care of. No screen share would be complete without an explanation of how lenders pricing works, showing them the different interest rates, and how pricing adjustments affect the options they will choose from. We wrap up with me preparing an estimate of funds needed for closing. The real magic starts when they get an accepted contract and escrow is opened. In a matter of a few days, I have the loan submitted, appraisal ordered and our initial loan approval. My average closing time is 21 days.

Three in five (60%) people surveyed by Masthaven bank believes that they would find it hard to get a mortgage today - half (50%) of UK homeowners surveyed feel this way, indicating some may feel like mortgage prisoners.

According to a new report by challenger bank Masthaven, the mortgage market is not in tune with modern consumers' evolving needs; the world has changed and the mortgage industry needs to play catch up. Today the bank publishes new data which indicates that UK householders sense a ‘computer says no’ mentality from mortgage lenders.

Masthaven’s Game of Loans report found many people surveyed believe they wouldn’t get a mortgage today. The poll, conducted by Opinium, reveals that both would-be and existing homebuyers are unsure if lenders would support them: 60% of the adults surveyed believe that if they were to buy a home today, it would be hard to get a mortgage. The bank is concerned that half (50%) of all adults who are homeowners surveyed feel this way; and it’s worried that they may feel like mortgage prisoners.

The new study - comprising two surveys of over 2,000 UK adults, in January and July 2017 - found that almost two in three (65%) people polled believes that getting a mortgage is about ‘box ticking’ not the reality of someone’s situation. This opinion has risen markedly by ten percentage points (from 55%) since the first poll in January.

It also highlights how people feel the mortgage market must adapt to appreciate their changing lives – a large majority (81%) of people surveyed believe lenders should make an effort to understand homebuyers’ individual circumstances. This view is strong among people aged 55 or over (88%), UK homeowners (84%) and parents (82%).

Age is a contentious issue

Nearly three in four (74%) people surveyed said they feel that meeting repayment criteria should determine mortgage eligibility, not age. Moreover, three in five (60%) of those surveyed believes that everyone who can afford the repayments when they retire should be eligible for a mortgage. This view has risen up from 53% since the January poll.

Commenting on the findings, Jon Hall, Managing Director of Masthaven said: “Just as homes have kerb-appeal to buyers, it seems people have a perceived sense of their own mortgage-appeal to lenders. Our report highlights how many people believe they have low or no appeal to mortgage lenders; they have little faith in the market. Whether these homeowners’ beliefs are founded or not, the industry cannot ignore how customers feel – their perceptions need attention. I believe the industry can adapt, and we’re publishing the report to encourage lenders to look at the new face of home borrowing: ordinary people with normal lives. The UK mortgage industry must create products and processes that are fit-for-purpose for society today – a world that’s rapidly evolved and looks different to even just a few years ago.”

Time for change

Game of Loans examines four audiences segments: self-employed, older borrowers, parents, and younger borrowers. Masthaven suggests that, despite new mortgage regulations providing a more stable framework, lenders have not adapted their approaches to cope with evolving financial lives. The bank is urging lenders to look closer at individual borrowers’ lives, so they can create products and processes that are fit for modern life. For example:

• Self-employed: Given the continuing rise of this workforce, the mortgage industry needs to take a fresh look at how it can support them. Affordability models need to reflect the concept of self-employed income; in many instances self-employed borrowers cannot even get past the initial mortgage selection criteria and progress their case to a trained mortgage underwriter, who would have the skills to be able to read and assess their company accounts.
• Parents: The robust affordability criteria have been set for a very good reason, but in many cases parents believe they can afford to make the mortgage repayments. Responsible lenders should be working with brokers to help find affordable solutions that are fit for modern families.
• Younger borrowers: Continued innovation is needed to help first-time buyers onto the property ladder. From unlocking intergenerational wealth and helping grandparents and parents with equity in their homes support their families, to boosting the building of affordable homes.
• Older borrowers:  The old adage of paying off your mortgage pre-retirement simply isn’t realistic for many people today. As the Government launches Lifetime ISAs to bolster home ownership for the under 40s, it should also consider solutions for an ageing population which keeps mortgages alive for longer.

Jon Hall added: “The audiences examined in our report aren’t niche groups on the fringes of society, they’re growing segments of the population with modern needs that a thriving mortgage market must address. It shouldn’t be 'game over' for many homebuyers before they’ve even put a foot on the property ladder. As a bank we need to make sure our application of the affordability rules are revisited regularly, to check hard-working householders are not being excluded from the mortgage market.  As a specialist lender we put people at the heart of the solution. Manual underwriting drives our decision-making rather than technology, and we work in tandem with brokers to assess customers’ individual needs.  I’m concerned to hear so many borrowers feel unsupported when in reality an experienced lender, with flexible processes and great broker partnerships, may be able to help.”

Other key findings

Alongside how difficult they felt it would be to get a mortgage, Masthaven asked people their views on other topics, including: the mortgage process, the UK housing shortage, intergenerational disparity, and lending into retirement.

Over half (55%) of self-employed respondents believes they would find it hard to get a mortgage today; and 70% of them feel that getting a mortgage is about which financial boxes you ‘tick’, not the reality of your situation.

Respondents’ perception of their ‘mortgage-appeal’ varied across the UK. Respondents in Wales have the strongest doubts - 72% believe they would find it hard to get a mortgage today, compared to 53% in Scotland. 68% of people in the East of England feel it would be hard, compared to 50% in Yorkshire & Humberside.

While many (73%) respondents have never used a mortgage broker or adviser, over a quarter (27%) have. Among the latter group, almost one in five (19%) said it was because their circumstances were “complicated”.

Three in four (75%) respondents believes it is unfair the young are struggling to get onto the housing ladder today. This view rises to 78% among people aged 55 or over. It drops to 72% among men, but rises to 78% among women.

Many people surveyed believe the UK housing gap will grow:  61% predict the shortage of affordable homes will increase in the next five years; this rises to 64% among people aged 55+ and is felt strongest (68%) in Scotland.

Nearly three in five (58%) respondents believes the price difference between homes in the north and south of the UK will increase in the next five years, but views vary - ranging from 79% in Newcastle to 44% in Cardiff.

More than two in three (67%) people polled thinks UK interest rates will increase in the next five years; meanwhile almost a third (32%) believes the average wage of homeowners will decrease in the next five years.

(Source: Masthaven Bank)

Financial gains in the UK housing market are being put on the back burner, as low noise levels, a place to relax and unwind and a home with good natural light and views of nature - are now seen as three times more important than a house that will improve in value - according to a new report by construction giant Saint-Gobain UK and Ireland.

The study, which shows that 90% of homeowners and renters want a home that doesn’t compromise their health and wellbeing, also unveiled that environmental factors are top of respondent’s minds - with high energy bills, the levels of cold in winter and noise from neighbours among the top three things people want to change in their home.

The study, which quizzed more than 3,000 homeowners and renters across the UK, delved further into the top desires of a home, finding 84% of people want a property to be environmentally friendly, but only 16% would be willing to pay more for it. Safety also ranked highly - for the under 50’s a neighbourhood where children can play outside safely, is the most important and for the over 50’s a home where they feel safe and secure is key.

Clare Murray, Head of Sustainability at Levitt Bernstein comments of the findings; “From the results of the survey there is a distinct opportunity to connect views of external green spaces with areas of safe and easily accessible play to suit all life stages. Linking homes and people with the visual comfort provided by views of nature, while allowing children the independence to experience it, should continue to be a priority for the homes we design and build in the future.”

Developed to influence the future of homes, ‘The UK Home, Health and Wellbeing Report’ conducted by Saint-Gobain UK and Ireland, and released in collaboration with academia and other businesses in the built environment sector, including the UK Green Building Council, UCL and Levitt Bernstein – provides insight into better understanding householder needs and makes sure homes are truly fit for purpose.

Stacey Temprell, Habitat Marketing Director at Saint-Gobain UK and Ireland, commented: “Looking to how the study can step change the industry, it’s clear that putting wellbeing at top billing for property and rental listings, as well as influencing the building factors for new properties could be huge. The report detailed that 91% of 18 — 24 year olds for example, are the most likely group to be influenced by energy ratings when it comes to choosing a home to rent or buy – and these are our future decision makers.”

(Source: Multi Comfort)