5 Innovations That Are Making It Easier to Buy a Home
A recent article in Scotsman Guide notes that today’s borrowers want a “simple, fast, and clear” process when it comes to applying for and closing a home loan.
That tallies pretty well with the findings released by J.D. Power from its 2015 “U.S. Primary Mortgage Origination Satisfaction Study,” which found that when loans close earlier than promised, satisfaction is significantly higher compared with when loans close as expected and when it takes longer than expected.
Plus, the study found that overall satisfaction with several mortgage application-related activities—such as completing an application, submitting documents, and receiving status updates—was markedly higher among customers who used digital communication channels versus those who communicated via mail and fax.
In other words, consumers want to reach out and communicate online or through mobile devices. And that might be where there’s a disconnect with some lenders. Fannie Mae’s Economic & Strategic Research Group notes in a recent paper that “mobile activity is less common in the mortgage space than other consumer finance market segments,” which “could place lenders at risk of not meeting consumer demand.”
The Scotsman Guide article cited several recent improvements to the application and closing process to meet the needs of today’s borrowers – and we’ve added some of our own.
1. Easier Doc Collection
Lenders ask for W-2 statements, credit reports, pay stubs, income-tax returns, and bank statements. “It eats away at a borrower’s patience as well as the speedy timeline they’re looking to meet,” notes Scotsman Guide. And if delays occur (and they often do), lenders may request updated documents, starting the cycle over again.
New products can help consumers or lenders collect digital documents online and not rely on paper versions. “Of course, this can all be done from the comfort of the home, meaning the customer doesn’t have to run multiple errands gathering up the information,” says Scotsman Guide.
If you’ve made the decision to buy (or sell) a home, you want the process to move as quickly as possible. One way to move things along for both sides is to for the borrower to be preapproved by a lender. The preapproval process involves providing a lender with documentation of income and debt. This lets the lender guide borrowers in how much home they can purchase (how much they can qualify to borrow), which can help narrow the home search.
Being preapproved makes an offer highly attractive to sellers, too, since they know the borrower has already received a nod on funding from the lender. “Buyers can begin looking as soon as they decide to buy a home, knowing a loan approval (or rejection) is imminent and not bogged down in paperwork purgatory,” says Scotsman Guide.
3. Counting More of a Household’s Income
HomeReady™ from Fannie Mae lets lenders combine income from non-borrower household members for the first time, which could help more eligible low- to moderate-income families qualify for a mortgage. With HomeReady, qualified borrowers can put as little as 3 percent down, using any source for the down payment funds, including down payment assistance programs or gifts. HomeReady also requires prepurchase homeownership counseling through an online provider, which studies by groups such as NeighborWorks have shown help more buyers stay in their homes.
“HomeReady is reflective of how borrowers often live today and breaks down many of the barriers they’re facing in qualifying for a mortgage,” explains Anne McCulloch, who leads Fannie Mae’s Access to Credit and Affordable Housing initiatives.
4. More Time to Review Documents
TRID, short for TILA (The Truth in Lending Act) RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure rule, has been called “the most significant change that the industry has experienced in 30 years,” by lenders such as Lee Acree, executive vice president of the wholesale mortgage division for Freedom Mortgage. TRID combined several forms so there’s less paperwork to review and sign, and made forms simpler for borrowers to understand.
Borrowers also have three business days to review their loan docs prior to closing. While mortgage applications dipped slightly in early October as TRID went into effect, they’ve recovered to a seasonable norm, according to data from the Mortgage Bankers Association. “Categorically, I believe that TRID is a good thing for the industry,” Acree told Scotsman Guide.
5. More Transparency
Above all else, today’s savvy consumers want to be reasonably sure that they’re getting the best home-purchase deal out there — or at least a fair one, notes Scotsman Guide.
“The way mortgage companies conduct their business is as important as the products they’re offering. The mortgage-tech innovations that will gain the most traction will be those that provide the highest level of process and deal transparency,” says the article. “Consumers want access to a competitive marketplace that allows them to make informed choices about products and services, instead of having those choices made for them by their mortgage originator or real estate agent.”
Source: “Consumer Demand Drives Mortgage Innovation,” by Rajesh Bhat, published in Scotsman Guide, November 2015.