AVMs are software-based pricing models that often use public records to estimate the value of a home or other real estate. Commonly known AVMs used by consumers are Zillow’s Zestimate and Redfin’s Estimate, but there are many more of these sophisticated AVMs on the market.

“The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals.”

Today, it’s an accepted norm to show homebuyers or sellers an automated home value that is accurate enough to get their attention. But these values often fail in the level of accuracy needed to be usable for a consumer’s financial transaction. This results in a rude awakening for a seller who expects to list their home at the value they’ve grown accustomed to — or a homeowner who is dreaming about the project they can finance with their current level of equity, only to be approved for a lower loan amount.

Misleading information

The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals. There are many business reasons why marketing and underwriting operate in silos. Highly accurate AVMs built for underwriting purposes cost more to produce than a marketing-first approach.

Marketing-based AVMs are often displayed for free to consumers in order to generate leads. Some companies may even go as far as showing a less accurate value as clickbait, hoping the homeowner will become a lead just to fix what they know to be true about their home.

It’s time to rethink this current norm, especially in today’s market where affordability is a challenge for so many. AVM providers have a larger opportunity to reduce friction in housing finance and provide viable alternatives to labor-intensive processes.

“AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.”

Known low-quality values ultimately erode consumer confidence, particularly if no context of value accuracy is provided. To make confident decisions involving real estate, both accuracy and transparency are needed to understand a property’s value. AVM solutions need to provide a precise indication of confidence that allows someone to act upon the value with an expected outcome. It matters not only to real estate professionals but to consumers, financial institutions and investors.

Transparent approach

When consumers are shopping for homes or checking the value of their own home on their favorite site, an expectation has been created that an answer will always be available. This helps to create loyalty and confidence for return visits.

Imagine if you typed questions into Google and the searches frequently turned up zero results. Chances are, you would look for a different search option. It’s better to see something — even if it’s irrelevant to your original search — than to see nothing. The human brain wants to see results.

The problem comes when these results are not accompanied by some context of how accurate the model’s prediction actually is. AVMs are typically designed to predict a fair market sales price or an appraised value for a given property. Predicting the outcome before a sale or appraisal has happened can be a powerful tool for gauging the timing of getting a loan, listing a home or making a purchase. Knowing with certainty that a value is accurate, and that there’s a high likelihood it will be within a margin of error for a future sale or appraisal, is what actually empowers consumers to act upon the data.

Telling a friend you are 50% sure you will arrive at their house on time for dinner, versus being 98% sure, will probably change their expectations and actions. A homeowner equipped with the knowledge about the accuracy of an AVM can make informed decisions about their finances. They can better choose the timing to take advantage of their home equity, which might enable them to renovate their home, consolidate debt or send a child to college. Potential buyers with this context can ensure they are financially prepared to purchase a home. This reduces friction in the process and ultimately leads to fewer failed transactions.

With a transparent approach to communicating confidence, there will be an increased need for highly accurate AVMs to be used directly by consumers, instead of today’s two-tiered approach. Valuation accuracy can be the difference between a frustrated, discouraged homebuyer and a well-informed one. The combination of cloud-computing power, more available property data and modern technologies such as machine learning make it possible for AVM providers to increase accuracy while providing confidence in the value prediction.

Increased usage

AVMs are being increasingly used in home equity lending. With increased accuracy, instant results and lower costs compared to an appraisal, AVMs are especially suited for underwriting these loans.

When lenders market to consumers using a highly accurate AVM, they present consumers with realistic expectations. When an AVM is sufficient to satisfy underwriting requirements — typically on smaller loan sizes — it creates a more streamlined lending process and leads to better borrower outcomes.

For conforming mortgages, AVMs are not currently accepted as a replacement for an appraisal, but they can be used by underwriters in tandem with an appraisal to verify a home’s value and flag for overvaluation or undervaluation. AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.

Historically, AVMs have been blind to a property’s current condition, which is why pairing them with a physical inspection has been key for using AVMs in lending decisions. Recent advances by innovative AVM providers and AI photo technologies have evolved the approach to include property condition as an input to the model, which produces a more accurate result. As AVMs become more accurate over time, underwriters will be able to rely on them further, and they will be used to determine whether an appraisal is required for the level of risk tied to a specific loan.

Accurate picture

Accurate AVMs can also change the way mortgage servicers interact with borrowers. AVMs help to determine when a homeowner can remove their mortgage insurance, assuring that borrowers aren’t paying for it longer than necessary. Removing the insurance requirement can help a borrower reduce their monthly payment and better understand their current equity position.

The low cost of AVMs also means that the values of properties in a servicing portfolio can be updated more frequently. This provides better tools that enable servicers to deliver the right options to current borrowers and inform them of additional opportunities to make use of their equity.

Close to 90% of mortgage holders have interest rates lower than 6%. This has created a lock-in effect where homeowners are prone to focus on improving their current property using available equity rather than moving to a different home. Servicers that use accurate AVMs can play a big part in empowering homeowners to understand all of their options and make good decisions.

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It’s understandable that some would see benefits to providing consumers with mediocre information all of the time, rather than great information some of the time. The recent evolution in AVM innovation means that there is no longer a need to compromise.

Machine learning, data availability and low-cost, massive computing power provide the ability to move past today’s two-tier system and focus on giving consumers direct access to underwriter-quality AVM values. This is an exciting development for homeowners and prospective buyers alike. Whether you’re a lender, originator, underwriter, servicer, investor or consumer, it’s OK to raise the expectation of accuracy rather than deal with the norm of missed expectations. And that is good news for everyone. ●

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By adopting a proactive approach and leveraging the right technology tools, originators can not only survive but thrive in this environment. The real estate market has always been cyclical, with ups and downs. The current downturn, however, presents unique challenges. With fewer homebuyers in the market and stricter lending criteria, originators are finding it harder to close deals.

“Instead of waiting for the market to turn around, proactive originators are looking for ways to maximize their efficiency and reach potential buyers more effectively.”

This situation calls for a shift in strategy. Instead of waiting for the market to turn around, proactive originators are looking for ways to maximize their efficiency and reach potential buyers more effectively. This is where successful mortgage professionals use technology to grow business for themselves. Here are some of the freshest technologies that cutting-edge originators use to grow their mortgage business.

Pioneering AI

LoanPass.AI is pioneering the use of artificial intelligence in the U.S. lending industry with its AI chatbot. This technology serves as an automated loan officer, enabling borrowers to confidentially shop, price and lock in loan approvals. The chatbot is designed to interact with borrowers using a set of customized questions that lead to deterministic responses from a product and pricing engine, which contains each lender’s specific pricing, eligibility and underwriting guidelines.

 The technology positions LoanPass as a transformative tool in the mortgage industry, offering lenders a way to enhance their operational efficiency, reduce costs and improve customer engagement, all of which are critical factors to business success. The company’s chatbot automates the loan generation process, which traditionally required a loan officer or call center.

This automation allows for efficient connections of borrowers to lenders, potentially increasing the volume of loans processed. Lenders can customize the chat sessions in real time, from the questions asked to the decisioning rules applied, giving them control over the loan origination process and the ability to tailor it to specific business needs.

The chatbot combines three knowledge sources: the lender’s product, pricing and eligibility guidelines; a general information knowledge base; and the extensive knowledge from ChatGPT. The chatbot can provide quick, accurate and personalized responses to enhance the borrower’s experience.

Indispensable insights

In today’s digital age, data is king. Mobility Market Intelligence (MMI) provides indispensable mortgage and real estate data, allowing originators to make data-driven decisions. In addition, building and maintaining referral relationships with real estate agents is crucial to lead-generation efforts for lenders and originators.

Given the vast number of agents, originators often find it challenging to optimize their referral outreach. To address this, many lenders are turning to data intelligence tools. MMI is a top player in providing data intelligence for the mortgage and real estate sectors.

It offers an extensive database that allows enterprise clients to pinpoint partner networks that align with their goals. It provides detailed insights into lenders, originators and real estate agents based on regions and specific transactions. By understanding market trends and buyer behavior, originators can tailor their strategies to meet current demands.

MMI assists originators in the competitive real estate market by helping them identify potential real estate agent partners and differentiate themselves from competitors. Features include the ability to search and filter agent transaction data, track agents with new daily listings, and inspect the LO Agent Wallet Share to see what percentage of an agent’s business they receive.

MMI provides tools for originators to stay in touch with borrowers in meaningful ways. This includes listing alerts for properties they’ve dealt with, custom property intelligence pages for borrowers and triggered alerts when mortgage credit checks occur.

Seamless journey

SimpleNexus was acquired by nCino in January 2022 and underwent a rebrand in September 2023. The nCino Mortgage Suite now provides the best of both worlds to mortgage lenders and originators. The system is designed to enhance the profitability of financial institutions.

The mortgage process can be complex, with multiple stages and stakeholders involved. The nCino Mortgage Suite simplifies this process by offering an end-to-end solution that automates various stages along the way. The robust platform brings together elements of the mortgage process, offering financial institutions a streamlined, efficient and data-driven approach to mortgage lending.

The suite streamlines the entire mortgage process, from origination to closing, making it more efficient and reducing manual tasks. In today’s fast-paced world, borrowers demand convenience. By offering a modern and seamless customer journey, nCino enhances the overall experience.

Originators have access to valuable data insights, and they can leverage this data to make informed decisions and improve their strategies. The suite provides an automated solution for managing incentive-based compensation, eliminating the need for complex spreadsheets and chaotic emails.

Social outreach

Social media is a powerful tool for reaching prospective clients, but it can be time-consuming and challenging to navigate. SocialCoach offers a solution that keeps lenders compliant across social media platforms. The system is a comprehensive social media management platform tailored for the mortgage industry.

It aims to simplify and automate social media marketing for originators, ensuring that the content they post is compliant with industry regulations and standards. The platform is trusted by leading brands in the mortgage sector.

SocialCoach allows originators to post and schedule content directly to their social media accounts, saving them hours of work every week. It supports various platforms, including Facebook, Instagram, LinkedIn and TikTok. This functionality ensures consistent online presence and compliance.

With the Video Catalyst tool, originators can tap into the power of TikTok and Instagram Reels. SocialCoach writes video scripts, and after an originator records from their phone, the platform takes care of editing and posting. The platform offers features to ensure that the content posted by originators is compliant. It provides built-in compliance parameters, allowing companies to decide which terms are flagged or blocked.

SocialCoach offers an analytics dashboard where companies can view activity and engagement metrics. This includes companywide social insights and personalized metrics for each originator. Understanding these key performance indicators for social media are crucial.

Proactive mindset

Arguably, one of the most important ways that successful mortgage professionals are moving the needle in this market is through mindset. Success in the current market requires a proactive mindset. Originators must actively seek out opportunities to grow their mortgage business. They need to leverage technology tools to maximize efficiency.

Originators must be willing to continuously learn and adapt. By embracing this mindset and utilizing key technology tools, they can better ensure that every minute spent translates into business growth. Here are three easy ways to start a mindset shift.

First, educate yourself continuously by staying up to date with the latest industry trends, regulations and technologies. Attend workshops, webinars and conferences to expand your knowledge by learning from industry experts.

Next, set clear goals. Define your short- and long-term objectives. Break down these goals into actionable steps and monitor your progress regularly. Third, actively network with Realtors, homebuilders, financial planners and other industry professionals. A strong network can provide referrals and insights into market trends.

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The bottom line is that current real estate market conditions demand that mortgage originators be more strategic and efficient with their time. By leveraging tools like LoanPass, Mobility Market Intelligence, nCino’s Mortgage Suite and SocialCoach, originators can navigate market challenges, optimize their operations and see tangible growth in their business. The future belongs to those who are prepared with the right tools and mindset. These loan officers will not only survive but thrive. ●

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By understanding these hurdles and the financial tools available, potential homeowners can navigate the process more confidently and make informed decisions. One of the most significant barriers to homeownership is accumulating the initial downpayment.

For many aspiring homeowners, especially first-timers, saving this sum can feel like an impossible challenge. As property prices continue to soar, accumulating the funds for a downpayment or securing a mortgage with a less-than-stellar credit history can take time and effort.

Financial lifeline

Downpayment assistance programs represent a lifeline for those looking to bridge the gap between their savings and the required downpayment. These programs are financial aid initiatives designed to help potential homeowners cover the upfront purchasing cost. They aim to reduce the barrier of hefty downpayments while making homeownership more accessible.

There are a number of different types of downpayment assistance programs. Grants offer funds that a borrower doesn’t need to repay. It’s free money offered to qualified buyers to assist with their downpayment.

Low- or zero-interest loans are another form of downpayment assistance with minimal to no borrowing costs. Some of these loans might be forgivable after the borrower resides in the home for a specific duration. Deferred-payment loans allow for the repayment to be postponed for a set period, or until the property is sold or refinanced. Other programs might match the buyer’s contribution to the downpayment up to a certain amount, doubling their financial capacity.

There are hundreds of these downpayment assistance programs throughout the country. Federal, state and local governments often have initiatives to encourage homeownership, especially in certain neighborhoods, or for specific groups like veterans or first-time buyers. An example at the federal level are the homeownership vouchers through the U.S. Department of Housing and Urban Development.

Many nonprofit organizations, driven by a mission to promote community development and homeownership, offer downpayment assistance. Organizations like the National Homebuyers Fund or NeighborWorks America are notable examples. These bodies, which often work at the city or county level, have programs tailored to residents’ needs. They may focus on revitalizing certain neighborhoods or cater to local populations, such as teachers or public service workers.

Game-changing assist

While criteria can vary based on the source and type of downpayment assistance program, some common eligibility requirements include income restrictions or first-time homebuyer status. Others require homebuyer education or residence requirements.

Since many downpayment assistance programs are designed for low- to moderate-income buyers, applicants must fall below certain income thresholds to qualify. Some programs are exclusively for first-time homebuyers. It’s worth noting that “first time” often includes someone who hasn’t owned a home in the past three years.

To ensure informed homeownership, some programs require applicants to complete a homebuyer education course. Most of these programs require the purchased property to be the buyer’s primary residence, meaning that investment properties typically don’t qualify. There might be limits on the property’s purchase price to ensure the program caters to those who need it most.

Downpayment assistance programs can be a game changer for aspiring homeowners, turning their dream into tangible reality. By understanding the nuances of these programs, mortgage originators can help potential homeowners navigate options more confidently and take a significant step closer to holding the keys to their new home.

Dynamic combination

When you mix downpayment assistance with an FHA loan, you create a synergy that can turn homeownership dreams into reality. These financing tools forge a dynamic combination that can have a transformative impact on the lives of new homeowners.

The primary advantage of an FHA loan is lenient criteria. With lower downpayments and flexible credit requirements, these products already pave a smoother path to homeownership. Add to that the benefit of downpayment assistance and you have a solution that significantly reduces the upfront costs of buying a home.

FHA loans have democratized the homeownership process, ensuring it’s not just a privilege for those with hefty savings or impeccable credit scores.By combining an FHA loan with downpayment assistance, the initial financial strain is reduced, allowing a buyer to focus on their monthly mortgage payment and other homeownership expenses.

Rewarding journey

While the path to homeownership — especially with tools like FHA loans and downpayment assistance — can seem labyrinthine, the proper knowledge and approach can make it a rewarding journey. Equip your clients with the right insights, remain diligent, and you’ll soon find them holding the keys to their dream abode. Remember, every homeowner was once a first-time applicant.

Even the reduced downpayment of an FHA loan can be daunting for many. But downpayment assistance paired with an FHA loan can bridge the financial gap. Together, these tools weave a narrative of empowerment, inclusivity and hope.

They symbolize a nation’s commitment to ensuring that every individual, irrespective of their financial standing or past credit mistakes, has a shot at the American dream of owning a home. From young couples stepping into their first homes, to single parents providing stable environments for their children, to retirees finding comfort in their golden years, FHA loans and downpayment assistance programs resonate in every corner.

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At the crossroads of dreams and reality, it’s heartening to know that tools like FHA loans and downpayment assistance programs are ready to guide, support and unlock doors. They are more than just financial instruments; they are enablers of dreams, testaments to resilience and pillars of communities. With these tools in hand, the path ahead is promising and achievable. ●

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Evolving into a nationwide phenomenon with meaningful benefits for both investors and the communities they serve, the real estate investment landscape experienced steady growth between 2013 and 2023, primarily due to local mom-and-pop investors. Growth in real estate investment also creates opportunity for mortgage originators. These deals can be funded with residential transition and debt-service-coverage ratio (DSCR) loans.

“Despite the near-term headwinds in the market, the future is bright for real estate investors.”

 Knowledge of this market is a useful tool if you currently offer these products or are considering them for your arsenal. Real estate investing has a deep history, presents unique loan scenarios and promises a bright future.

Market history

Fix-and-flip home renovations might be a ubiquitous concept today, thanks to HGTV. But the phenomenon of acquiring properties to update and resell them really took off in the 1980s, when economic downturns and dwindling stock market returns led to a surge in home foreclosures.

Rather than let these properties go to waste, investors took notice of the profitable opportunity. They began purchasing foreclosed homes with the intention of renovating and reselling them for a profit once the housing market showed signs of recovery.

Throughout the 1980s and ‘90s, this trend was propelled by private financing that fueled a growing interest in renovation of older properties. Inspired by TV shows like “This Old House” and encouraged by emerging retail giants like Home Depot and Lowe’s, many new homeowners began to undertake DIY renovation projects that paved the way for the YouTube channels and TikTok videos of the modern era that are focused on house flipping.

Today, flipping is seen as a viable profession as investors have gotten the cycle of purchasing, renovating and reselling properties down to a science. The financial crisis of the late 2000s triggered a surge in private debt as the primary financing source for individual real estate investors, especially in the fix-and-flip sector. Private lenders began offering short-term bridge loans that became a hit for borrowers, due to the quick approvals and more lenient credit criteria when compared with traditional financing methods.

Trends over time

According to real estate analytics company Attom, the percentage of homes purchased for flipping purposes rose from 5.8% in 2020 to 8.4% in 2022. These investments yield varying returns but generally prove profitable, with year-end 2022 Attom data showing an average gross profit of $67,900.

Where these investments are happening has changed a lot in the past decade. The most popular residential markets of 2013 — including Houston, San Francisco, and Bethesda, Maryland — have now been superseded by markets like Atlanta, Raleigh and Dallas-Fort Worth, which topped the National Association of Realtors’ 2023 list of the hottest markets. Fix-and-flip transactions have increased from 4.6% of all U.S. single-family home sales in 2013 to 7.2% of all sales in third-quarter 2023. The current wave of fix-and-flip activity is being driven by several trends.

First, an increasing number of households are seeking move-in ready homes, driving the demand for renovated single-family properties. Existing home inventory has decreased steadily over the past decade. Although supply entered an upswing from the ultra-low inventory early in the COVID-19 pandemic, the 3.6 months of supply at the current sales rate in October 2023 was down from five months a decade earlier. Low supply has created opportunity for real estate investors to provide housing solutions.

Second, 60% of real estate investors are small-scale, mom-and-pop investors and business owners who prioritize investments in their local communities, according to Kiavi data. They play a pivotal role in revitalizing neighborhoods through renovation and repurposing of under-improved homes, bringing a community-based mindset to their projects.

Third, sustained demand for rental housing has created a steady stream of cash flow for real estate investors. The number of single-family renter households has increased from 40.2 million (or 30%) of all U.S. households in 2013 to 45.2 million (or 35%) in 2022, per census data. This provides investors with a consistent source of income.

Lastly, the aging U.S. housing stock presents an opportunity for real estate investors to renovate older homes and meet the growing demand for turnkey properties. This helps create more affordable housing options and future opportunities for homeownership.

Short-term forecast

Technology and data are the future of real estate investing. Data-driven technologies, including advanced artificial intelligence (AI) and machine learning models, are set to empower investors by dismantling traditional borrowing hurdles, automating time-intensive processes, and delivering swift and more tailored financing.

Today’s borrowers want access to personalized, transparent pricing and on-demand capital. Advanced technologies synthesize extensive data sources to reveal insights that enable investors to make faster, more informed decisions. Precise assessments of factors such as after-repair value ultimately increases the likelihood of success for each project. This efficient use of data clarifies potential risks and rewards, providing a structured pathway for investors to have lucrative and successful projects.

AI and machine learning models are becoming more sophisticated, providing clarity to lenders about primary risk factors tied to the investor, property and local market conditions. These models create better overall outcomes from an underwriting perspective and empower investors to successfully exit projects.

Although interest rates won’t be returning to historic lows anytime soon, there remain plenty of opportunities for investors looking to grow their business. Given the low inventory of homes for sale and the number of buyers looking for move-in ready homes, fix-and-flippers did well in 2023. And we can expect to see this trend continue in the coming years.

Despite the near-term headwinds in the market, the future is bright for real estate investors. From fix-and-flip projects to long-term rentals and new construction, each real estate investment helps to revitalize neighborhoods and provide much-needed turnkey housing, all while enabling investors to achieve their wealth-creation goals. ●

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Selling these programs goes beyond simply highlighting their features. Mortgage companies offer similar products, so the key lies in selling the benefits rather than the features. By helping to build and sell new homes, or refurbish older ones, mortgage originators not only support real estate agents, builders and future homeowners but also reap the benefits of increased business.

Builder enticements

Construction-to-permanent loans feature two distinct phases: the construction phase and the permanent phase, providing borrowers the ability to lock in a long-term interest rate at the time of application. What sets these programs apart is their flexibility.

Borrowers have the option, depending upon the lender, to float their rate (if it’s lower than the rate initially offered) to the current market rate prior to the completion of construction. This means that the permanent rate may differ from the one when the transaction first occurred. This helps to safeguard borrowers against rising interest rates and ensures they benefit from the most favorable market conditions.

Why are these programs so crucial in today’s market? For builders, they offer a range of benefits that can help boost sales, reduce risk and improve cash flow. With construction-to-permanent loans, even if a borrower no longer qualifies at the completion of construction, the builder still receives full payment from the lender. In a market where presold homes are turning into spec homes for various reasons (such as rising interest rates or changes in a borrower’s employment status), these loan programs act as a protective shield for builders, keeping them from being stuck with unsold inventory and saving them from financial losses.

Furthermore, these loan programs improve cash flow for builders. With commercial credit lines becoming more expensive and financial institutions tightening their credit requirements, many builders face challenges in financing their projects. Construction-to-permanent loans can eliminate these hurdles, enabling builders to cover overhead costs and realize profits during the construction phase. By closing the permanent loan upfront, builders are assured of being paid their contract price in full, even in the event of borrower default.

Financial safeguards

Mortgage originators can also reap significant benefits from these loan programs. They can eliminate buyer fallout caused by rising interest rates, loss of employment or changes in credit ratings. This not only safeguards the originator’s commissions but also helps to ensure a smoother transaction for all parties involved.

These loan programs offer flexibility in how builders can use their credit lines. By freeing up credit that was previously tied to construction projects, builders can allocate funds toward company expansion, land acquisition or even the development of spec homes. This newfound freedom allows builders to maximize their growth potential and take advantage of market opportunities.

In addition, these loan programs simplify the builder review and acceptance process. Financial statements and personal credit reports are not required, making it easier for builders to access financing without extensive documentation. Even properties initially intended as spec homes can be seamlessly switched to construction-to-permanent programs upon receiving a buyer’s contract.

Revitalize properties

Another solution that has gained traction in the current real estate climate are renovation loans. These are purchase programs that can give buyers the opportunity to transform a stagnant property into their dream home. These loans allow buyers to see the potential in a property and offer them the option to address outdated features, finish basements, add square footage, or even tear down and build something entirely new.

One big plus for these programs is that they can be used for home improvement projects in conjunction with the purchase of a home, making it an invaluable sales tool for Realtors, regardless of their focus as a sales agent or a listing agent. The median age of homes in the U.S. is 44 years, according to census data. Many of these properties require upgrades, repairs or modernization.

Renovation loans can be used to rejuvenate these tired fixer-uppers that might need more than a fresh coat of paint. Buyers often identify the changes they wish to make but struggle to finance them after the purchase. These loans resolve the issue by providing the necessary funding upfront.

Mortgage originators can close more loans by helping buyers understand that, with a renovation loan, they won’t need to worry about paying out of pocket for the upgrades. The lender bases the loan and downpayment on the total cost or finished value of the property. This means that buyers can combine the cost of renovations with their permanent mortgage, resulting in one loan and one closing. Luxury properties are also eligible for these programs, which do not adhere to conventional loan limits.

Custom preferences

By embracing construction-to-permanent and renovation loans, mortgage professionals can help Realtors increase their sales and reduce buyer fallout that results from the inability to find a house that meets a client’s requirements. For example, if buyers want a finished basement in their new home, they may be limited to listings that already have this feature. A renovation loan allows them to purchase a home with an unfinished basement and have the ability to finish it according to their preferences, with minimal additional cash outlay.

Moreover, these loans can help to shorten the overall house-hunting time frame, which benefits both buyers and Realtors. With less time spent searching for a house that meets all the criteria, Realtors can focus on obtaining more listings or finding additional buyers.

Construction and renovation loans can help to reduce or eliminate buyer-seller negotiations that may arise from home inspections. These typically occur after the sales contract has been finalized, and any issues discovered during the inspection may lead to further negotiations. Even if the seller agrees to make the required repairs, it still takes time for them to obtain bids and complete the work.

In some cases, warranties on repairs may not transfer to the buyer, resulting in additional costs. By utilizing these loans, buyers can include the necessary expenses in their loan, eliminating the need for separate negotiations and streamlining the closing process.

Lastly, these loans provide a financing option for buyers interested in teardown projects. Some buyers may wish to purchase a property with the intention of completely razing it and building a new home. Traditionally, this would require multiple financing transactions. Today, however, buyers can simplify the process by completing all necessary financing with a single loan and closing.

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These loan programs are invaluable tools for mortgage originators in the current market. By understanding the benefits they offer to builders, borrowers and yourself, you can differentiate yourself in the market and position yourself for success. ●

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State and local HFAs support the purchase, development and rehabilitation of affordable homes and rental apartments for low- and moderate-income families. These agencies play a crucial role in providing affordable housing across the country. (And yes, HFA is not to be confused with FHA or Federal Housing Administration loans.)

“You or your company may have had a prior unsatisfactory experience in the HFA space. The good news is that time and technology have facilitated important progress.”

Not all housing finance agencies are alike. How they operate and function can vary widely. Typically, HFAs act as independent organizations overseen by a board of directors that’s appointed by an elected official. For state-level HFAs, the governor is usually the appointing authority.

You or your company may have had a prior unsatisfactory experience in the HFA space. The good news is that time and technology have facilitated important progress.

Shapes and sizes

Let’s begin by distinguishing HFA models. Some of these agencies operate as full-scale mortgage banking institutions with in-house loan origination, secondary marketing, servicing and other centralized business units required to conduct mortgage lending. A small number of HFAs are approved seller-servicers through Freddie Mac, Fannie Mae and Ginnie Mae. They do not rely on a lender as the master servicer.

Some HFAs are more focused on multifamily finance or niche products to serve their specific market. Some have a contractual partnership with a mortgage lender or another HFA to conduct some or all the activities required to manage a first-mortgage product offering and downpayment assistance. This partnership creates a master servicer that is the conduit to buy all of the loans originated through the HFA’s program by partner lenders.

You may know or already work with some of these institutions. For instance, U.S. Bank is a master servicer that works with more than 40 state and local HFAs across the country. HFAs with servicing capabilities include the Idaho Housing and Finance Association, as well as ServiSolutions, which is a division of the Alabama Housing Finance Authority. Lakeview Loan Servicing, one of the nation’s largest servicers, also works with multiple state HFAs.

To work with an HFA or its master servicer, an originating lender will need the systems and process support to sell whole loans and comply with the agency’s policies and procedures. Lenders will need to complete an application obtained from the HFA or its master servicer, in addition to paying an application review fee. In most cases, it is similar to being approved to deliver loans to a correspondent.

Questions will be asked about your company’s financial condition, production levels, quality control and appraisal process. Be prepared to provide information on any active legal actions, audit reports, resumes of key personnel, proof of insurance and other details. In addition, there may be less common requirements, such as actual office presence in a specific state.

Pots of money

Congress established the tax-exempt bond program in 1968 to fund affordable housing, allowing for the creation of many of the state housing finance agencies. This provided state HFAs with a vital funding source. Tax-exempt bond financing can produce below-market interest rates on 30-year fixed-rate mortgages for first-time homebuyers. This is especially important in a rising-rate environment like today’s.

In 2019, state HFAs financed more than 64,200 mortgages in the U.S. with these bond programs. These agencies also built or rehabilitated more than 46,200 affordable rental units through multifamily bonds. When Congress created the bond program, each state could issue these low-interest bonds up to a cap of $50 per state resident. Due to program effectiveness along with strong lobbying efforts, this limit has grown over the years to $120 per capita in 2023.

Some HFAs also rely on the to-be-announced (TBA) secondary market. The TBA market is a mechanism to obtain pricing for the future sale of securities and is a common form of mortgage-backed securities trading. HFAs can supplement their tax-exempt bond programs by leveraging this standard taxable source of funding.

In addition, many state and local agencies benefit from other federally funded programs. The Community Development Block Grant program received $3 billion in funding in 2023, while the Home Investment Partnerships Program was funded at $1.5 billion. These programs can pay for specific housing needs, such as downpayment assistance and home improvements.

Tax-exempt bond programs generally require additional documentation. Beyond credit qualification, the lender will need to provide documented proof of the borrower’s maximum household income and first-time homebuyer status. Therefore, if a lender is participating in a program that is funded by the sale of tax-exempt bonds, expect to see a loan delivery checklist that contains more documentation for each file.

One example is the need to ensure that a borrower signs the recapture notice. Borrowers may be subject to recapture — a tax to the federal government for the benefit of a lower-interest mortgage. Recapture tax is rarely sought but is required to be paid if all three of the following conditions occur: the home is sold within nine years of being purchased; the borrower’s income exceeds allowable limits at the time of sale; and the borrower profits from the sale.

Rolled-up sleeves

Downpayment assistance programs are an important tool to support first-time homebuyers and purchase-market production. More than ever, originators need to offer these programs. Even if a borrower is ultimately able to qualify without downpayment assistance, the originator has demonstrated their value and is likely to earn future referrals by having more ways to help the client qualify.

Many large banks have stopped participating in some or all state HFA programs. This is due to slim profit margins that don’t support the additional resources needed to ensure the quality of loans. Even the more nimble independent mortgage banks have been vocal in recent years about the lack of consistency in program guidelines, processing, required technology support or manual workarounds.

Anyone interested in expanding homeownership opportunities in underserved communities should applaud the government-sponsored enterprises (GSEs) and advocacy groups for their efforts to bring more consistency to downpayment assistance programs. In the past few years, there has been silent but impactful work to develop standard subordinate legal documents for these programs.

This will reduce the time and expertise needed by a lender to review documents and comply with GSE requirements for downpayment assistance. Docutech and DocMagic were part of the legal team that created these documents, which are now available for the 16 states that are currently using them as pilot participants.

Another advancement is the HFA1 tool that’s now available through the National Council of State Housing Agencies. This tool indicates the alignments and differences for programs offered by 23 state HFAs. Lenders will find details on mortgage and downpayment assistance qualification, closing, delivery and other instructions.

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Despite the complexity of participating in dozens or hundreds of programs, it can be beneficial and lucrative for lenders and originators who can patiently put the required support in place and build a name for themselves as experts in the field. HFA websites will often post lists of their best lenders to refer potential homebuyers.

Real estate professionals who work in the first-time homebuyer market will look for an originator with the widest product menu and the ability to make deals work by explaining to the borrower how they might benefit from a subsidy for the downpayment or closing costs. These subsidies could feature deferred payments, payments forgiven over time or grants that will never need to be repaid. ●

The post Carousel of Promise appeared first on Scotsman Guide.

The result is a relatively new breed of real estate: condo hotels or condotels — an incredibly lucrative business opportunity for investors and developers alike. What is a condotel and how does it differ from the traditional condominium?

“Navigating the intricacies of condotel financing requires a strategic approach that includes consideration of different financing options, property locations, management companies and local laws.”

When it comes to real estate investments, two of the most popular options that come to mind today are condos and condotels. While each offer attractive investment opportunities and give owners the freedom to live in a unit or rent it out, there are important differences for mortgage originators to understand before delving into the world of condotel financing.

Unique characteristics

A condotel is essentially a condominium that operates as a hotel. It is typically a five-star complex with hotel-specific infrastructure such as restaurants, bars, spas, beauty salons, swimming pools and conference rooms. Like hotels, condotels are managed by an operator, but some if not all units are owned by individuals rather than the management company.

Investors do not buy blocks of shares but separate units — studios or apartments with several rooms and a kitchen, which can be used as temporary accommodations or rented out. Condotels are often operated by qualified managers under a single brand — including chains like Four Seasons, Hyatt and Hilton.

In addition to owning their units, condotel owners benefit from the provision of hotel services such as housekeeping, maintenance and rental management. In a condominium building, on the other hand, the unit owners collectively manage the property through a homeowners association.

Since condominiums are viewed as residential properties, they can be financed more easily with traditional mortgages. Financing a condotel, however, is more challenging because lenders often classify them as commercial properties. This requires an alternative option such as a commercial loan or special-purpose program.

Owners of condotel units are subject to restrictions on how long they can reside in the complex. The management contract specifies the amount of time the owner may stay at the property. This is usually about four weeks per year. The rest of the time, the units are rented out.

Preferred destinations

Combining the features of a hotel and a condominium, condotels have become a preferred option among people who seek a hotel-like experience along with the comfort and privacy of a home. The first condotels appeared in Miami in the 1980s.

Condotel owners can benefit from excellent rental yields as well as capital appreciation. Because condotels are often found in prime tourist destinations, such as beachfront or downtown areas, these desirable locations tend to experience high demand, which can drive up property values over time. Furthermore, condotels offer a hassle-free investment option for those wishing to enter the real estate market without taking on property management responsibilities.

For a private investor, buying a condotel unit is generally a low-risk investment. These types of properties tend to be high quality and in high demand. Often, all of the apartments are sold out before the construction of the building is complete. The hospitality chain that owns the condotel controls compliance with all standards during construction, and it ensures that all necessary documents are certified by legal and financial organizations.

Financing intricacies

Condotel loans function similarly to traditional mortgages, but there are a few key differences to consider. Lenders evaluate the property’s financial performance, occupancy rates and the management company’s track record before approving a loan.

Borrowers may need to meet specific requirements such as higher credit scores and downpayments (20% to 30% of the purchase price). This is due to perceived risks associated with condotel investments. Condotel borrowers may face higher interest rates or different terms and conditions (e.g., a condotel unit must be managed by an approved hotel management company).

When it comes to choosing the right type of loan for condotel financing, borrowers have several options, but nonqualified mortgages (non-QM) provide the most options and flexibility. Non-QM loans cannot be purchased by the government-sponsored enterprises or federal agencies.

One popular non-QM choice is the debt-service-coverage ratio (DSCR) loan. With these programs, lenders evaluate the property’s income potential to determine the borrower’s ability to repay the loan. This is particularly beneficial for condotel buyers who intend to generate rental income from their property.

Another option is the bank-statement loan program. This allows borrowers to qualify for a mortgage by using their bank statements as proof of income, making it ideal for self-employed individuals or those with unconventional sources of income. This flexibility can be especially helpful for condotel buyers who may have unique financial situations.

Profit-and-loss mortgages can also be advantageous for condotel financing, especially for individuals with diverse income streams. These loans are designed for borrowers who own a business or multiple investment properties. Lenders analyze the borrower’s profit-and-loss statements to determine their income stability and ability to repay the loan.

Industry network

While condotel loans offer a range of benefits, they also come with their fair share of challenges. One of the primary challenges is finding a lender that specializes in condotel financing.

Unlike conventional financing, condotel loans have limited availability in the mortgage market. Mortgage brokers with a strong industry network can help clients identify lenders that specialize in this niche market and effectively navigate the complex landscape.

Condotel loans often carry higher risks for lenders compared to conventional residential mortgages. As a result, lenders tend to impose stricter requirements and be more cautious when underwriting these loans. Determining the value of a condotel can also be challenging due to the property’s dual nature as a residential unit and a commercial establishment.

Accurate appraisals must consider rental-income potential, projected occupancy rates and revenue streams. Mortgage brokers should work with experienced appraisers who are authorized to evaluate condotel properties, enabling borrowers to obtain a fair and accurate appraisal that is essential for loan approval.

Condotel financing requires an understanding of the unique business model underlying these properties. This includes analysis of the revenue potential, vacancy rates, resort management fees and the overall success of the property’s rental program. Prior experience and knowledge in this area is instrumental in securing favorable financing terms.

Thorough research

Navigating the intricacies of condotel financing requires a strategic approach that includes consideration of different financing options, property locations, management companies and local laws. The various non-QM financing options available should be thoroughly researched and evaluated.

It should be noted that different lenders will have specific criteria for financing condotel properties. By considering various options, you can identify lenders that specialize in condotel financing and are willing to work with such buyers.

Condotels located in popular tourist destinations, business centers, transportation hubs or areas experiencing rapid construction activity are more likely to attract buyers and vacationers, thereby generating higher returns. Lenders consider the investment potential of the property when determining the financing terms and conditions. Locations with a stable and growing real estate market should also be considered. This reduces the risk of property depreciation and loan default.

Efficient property management is essential for maximizing returns on condotel investments. Strong property management ensures proper maintenance, marketing and guest services, leading to higher occupancy rates and increased rental income.

Condotels, with their unique characteristics, may be subject to specific legal considerations. These include zoning and land-use regulations, licenses and permits, tax and insurance implications, and condo association rules such as restrictions on rentals or operational limitations. They may also include requirements related to various aspects of the financing process, such as downpayments or interest rates. Since all of these regulations and requirements can vary from one jurisdiction to another, it’s important to know the local laws.

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As the real estate landscape continues to evolve, the condotel phenomenon offers a unique blend of luxury, convenience and profitability. For those willing to embrace the challenges and complexities, condotels can open the door to a new and lucrative dimension of real estate investing.

With the right knowledge and a strategic approach, mortgage brokers can turn their clients’ dreams of owning a fully serviced accommodation with the potential for high rental yields into a reality. Equip your clients with the information and strategies outlined here to help them embark on a journey that could redefine their real estate portfolio and financial future. ●

The post Take Advantage of the Best of Both Worlds appeared first on Scotsman Guide.

“Projects in need of critical repairs or that have significant deferred maintenance can result in unsafe living conditions, evacuations and uninhabitable homes,” a Fannie Mae spokesperson writes in an email. “In addition, special assessments for these types of issues can result in a substantial financial hardship for homeowners — especially low-income or first-time homebuyers — which can put them at risk for loan default and foreclosure.”

One of the practical effects of these changes is that more condo loans are being rejected or delayed, says Dawn Bauman, chief strategy officer for the Community Associations Institute, which advocates for condo associations as well as the 74 million people living in these developments. Her organization sent a survey to members last year. Of the 541 respondents, about one-quarter said that loans in their condominium developments were denied due to the new requirements while more than one-third experienced significant delays.

Bauman says that she’s concerned that the new rules apply to all condo projects with five or more attached units. Bauman also says that her membership learned that Fannie Mae maintains a list of condo projects for which they won’t purchase loans.

“The ineligible blacklist came to the surface after all of this,” Bauman says. “It was like, ‘Wait a second. There’s a list, actually?’ While it existed before, it wasn’t as big of a deal before because there weren’t that many projects on that list. It then became just a bigger deal after the new requirements came out.”

The Boston Globe reported last year that the number of U.S. condo projects on this list had grown to more than 2,300. Data and technology company CondoTek told the newspaper that the list numbered fewer than 300 projects the year before.

Fannie Mae reports that only 1.2% of condo projects were labeled as “unavailable” as of this past June. The agency also says that condo loan acquisitions totaled 9% of its single-family conventional business in both 2021 and 2022, an increase from 8% in 2020.

“Most projects that are currently listed as unavailable have other eligibility issues, such as active or pending significant litigation, hotel- or resort-type characteristics with transient occupancy, too much commercial space, or inadequate insurance,” according to Fannie Mae.

The Community Associations Institute, the Community Home Lenders of America (CHLA) and the National Association of Realtors asked the GSEs and its regulator, the Federal Housing Finance Agency, for more transparency about the list of nonwarrantable projects. This past December, the GSEs annnounced plans to create an online tool for homeowners associations to identify whether they are on the list and what they need to do to be removed.

CHLA executive director Scott Olson applauds the move for increased transparency, saying that if the GSEs identify problems with a condo development, the association should be made aware so it can fix them. Olson says that his organization has been focused on prevention of overreactive policies. He hopes that the GSEs and other regulators scrutinize the underlying causes of the Champlain Towers South disaster. 

“You should worry about older buildings; you should worry about high rises,” Olson says. “You should worry about areas where there’s a lot of water. That was a big problem with Surfside — the water erosion. You shouldn’t just overreact and be really tough on everything.”

Bauman notes that condominiums tend to be an affordable option for first-time homebuyers, retirees and everyone in between. She remains concerned about what could cause the GSEs to reject loans from condo developments. Those could be everything from insurance requirements to special assessments. She notes that homeowners associations commonly levy assessments for such things as lobby construction or common-area improvements. What types of assessments could cause more delays or denials for condo loans?

“Transparency is awesome, of course,” Bauman says. “The next step will be to really evaluate whether these are reasonable requirements, or addressing liability concerns for Fannie Mae and Freddie Mac, while making sure they’re doing what they’re supposed to be doing for the American people, which is putting liquidity into the marketplace.” ●

The post Shedding light on a spate of condo loan rejections appeared first on Scotsman Guide.

The CoreLogic Home Price Index (HPI) showed that national home prices reached new heights this past October, exceeding the previous year’s peak by 3%. What’s more, CoreLogic’s 2024 HPI forecast suggests a continued increase in prices that will average about 3% for the year.

Some markets saw even larger price gains over the course of last year. Miami, for example, has barely seen a dip in prices and ranked as the No. 1 large market for appreciation for 17 consecutive months. Prices in Miami increased by 11% last year for cumulative growth of 61% since the onset of the COVID-19 pandemic.

The rate of home price growth was unexpected given the loss of homebuyer purchasing power and declines in affordability brought on by higher mortgage rates. While a lack of existing homes for sale explains a lot of the pressure that drove home prices higher, a migration of higher-income households from more expensive markets to comparatively affordable markets has also played a role.

According to CoreLogic data, cross-metro migration remained elevated in 2023 after picking up pace at the onset of the pandemic. In 2019, 16% of homebuyers came from outside the metro area they purchased in. In each of the past two years, however, this share reached 23%. In other words, one in four homebuyers were from another region.

What’s more important is that the income of an in-migrating buyer tends to be higher (and sometimes a lot higher) than that of a local buyer. In Miami, in-migrating buyers have average incomes that are 59% higher than that of local buyers. The gaps in Phoenix and San Diego are 37% and 26%, respectively.

Although these three metros are interesting examples of already-pricey markets where in-migration added fuel to home price appreciation, the large income-gap differential exists in many other markets. This is particularly true of cities that tend to rank as more affordable and have recently seen considerable in-migration from other parts of the country. As the chart on this page shows, the income gap is at least 60% in Des Moines, Iowa; Grand Rapids, Michigan; and Louisville, Kentucky.

Many of the largest metros for out-migration also rank among the top markets for home equity accumulation. Los Angeles, San Jose, San Francisco, New York City and Seattle have some of the highest numbers of outbound mortgage applicants — and the average equity for a mortgaged home in these areas ranges from about $450,000 in New York to nearly $1.2 million in the Bay Area.

If an in-migrating homebuyer sold a home in one of these locations, they also had a considerable amount of cash for purchasing a new home. As CoreLogic data suggests, all-cash transactions have been on the rise. They comprised nearly 40% of all sales in fourth-quarter 2023, up from 33% in Q4 2019. ●

The post A 2023 housing market surprise could extend into this year appeared first on Scotsman Guide.

Gurtler recently told Scotsman Guide that her wild growth was due to a lot of hard work and sacrifice. Her first two years, she had to hit the gas and learn as much as she could without falling behind. It was difficult, but she thrived in the high-pressure environment.

Now she’s hit her stride and is intimately familiar with the loan process in New York — which she calls “very long and unique” — as well as the other states she originates in. She studies constantly, keeping up with Fannie Mae and Freddie Mac rules along with special guidelines for self-employed borrowers. And Gurtler is organized and proactive, with spreadsheets full of borrowers who locked in at higher rates and a calendar packed with reminders to follow up.

She spends her working hours in Manhattan’s Financial District, in an office she calls “inspiring” because of co-workers who are team players (even if they’re technically competing for loans). After hours, you can find her at a comedy show in the city or at home cuddling her dog, Jax.

As a loan consultant for Ally, which partners with Better Mortgage Corp. on its digital platform, Gurtler has one of the largest marketing forces in the industry behind her. She also has a built-in client base in Ally’s banking and auto loan customers. While business slowed a bit in 2023, she still faces a unique problem in the current market: a full pipeline and more loans than she can close by herself.

“There is a lot of volume, so being able to get to everyone can be a challenge,” Gurtler said. “That requires a lot of hard work, a lot of dedication, to sit down and make those phone calls, answer those emails and be available as much as I can.”

She said she had to learn to be a leader and delegate when she needs assistance. She mentions her team often and affectionately, attributing much of her success to their support. Gurtler’s team of loan officer assistants keep in touch with borrowers early in the home purchase process and provide round-the-clock customer service.

This frees her up to focus on more immediate matters like borrowers with accepted offers, closing dates within 90 days and refinance applications. The market slowdown has allowed her more time to interface with each client and to chat with people who are still shopping. She’s earned one of the top accolades among Ally originators for spending so much time on the phone.

“I’m enjoying (the job) more because I feel like I’m giving that personal attention to my clients,” Gurtler said. “I’m building better connections, and I feel happier when they get their offer accepted or they get out of a high adjustable rate, because I know them more personally.”

The slowdown has also offered her a chance to regroup and “get off the hamster wheel.” Her company, she said, is focused on launching new services, including fully underwritten preapproval letters and a 24-hour turnaround on commitment letters.

“Having that in our back pocket is all the rage,” Gurtler said. “The Realtors love hearing that.”

She also has more time to travel and pursue her favorite hobby, snowboarding. Gurtler has made a point to travel to cities that are seeing a lot of in-migration, like Charlotte. When she talks to borrowers buying homes in these cities, it’s easier to build rapport because she understands the area and its way of life.

“I might be the only loan officer that feels this way, but I enjoyed 2023. Maybe not volume-wise, but I’m not in this industry to just make money,” Gurtler said.

Her biggest reward comes from helping people, especially first-time buyers, get into their dream homes. “My favorite thing in the world is when we go over their monthly payment and they tell me that it’s cheaper than rent. Best feeling,” she said. ●

Tips of the Trade

Work with your team if you’re lucky enough to have one. It’s impossible to do everything on your own. You need to work well with others and delegate. Those qualities can really help you reach more clients. Remember how important this is for the client — they’re buying a house or saving money on a refi. This is a big deal, so don’t lose sight of how you’re helping others. Make sure you follow up as much as possible. Stay on top of the borrower so they feel important, because they are.

The post Featured Top Originator: Marissa Gurtler, Ally powered by Better appeared first on Scotsman Guide.