The loan officers that Scott Groves talks to are struggling. Really struggling. Mortgage rates are around 7.7%, the highest levels in over 20 years, and LOs across America are having to reset their strategies. It’s no longer about just outlasting a bad market for a couple of months.
“I would say a vast majority of LOs have woken up to the fact that it won’t get easier,” said Groves, a branch manager at Synergy One Lending and owner of Consolidated Coaching.
Higher down payments and surging monthly mortgage payments are throttling borrowers’ personal finances, and prospective buyers are turning to family members to gift funds or sign up to be non-occupant co-borrowers.
“Instead of Mary and Bob Smith buying a place, it’s Mary and Bob Smith and Bob’s mom,” said Dominic Carlucci, sales manager at CMG Home Loans. “We’re bringing her into the fold because in central New Jersey, North Jersey, it’s expensive to live here.”
Family members or friends can become a non-occupant co-borrower on a mortgage to help borrowers take out a loan if they have poor credit, limited employment history or a high debt balance.
With an increase in the number of first-time buyers not meeting the eligible debt-to-income (DTI) ratio, a parent can be added to the mortgage loan, with his or her income and liabilities considered and ultimately be included in the combined DTI ratio.
While having a non-occupant co-borrower on a mortgage wasn’t as common when mortgage rates were at an all-time low, times have changed.
“You need to know what programs you can or can not have a co-signer,” said Groves. “What programs can you or can you not use room rental income from a family member? It’s about how do you have those conversations with a family member who wants to help their niece or nephew get into a house?”
The importance for loan officers being able to have more exploratory conversations with every lead has become crucial as the cost to borrow mortgages aren’t expected to get lower any time soon with the Federal Reserve expected to keep interest rates higher for longer.
There’s growing concern in the mortgage industry that rates could even touch 8% before they fall below 7%.
Whether it’s more niche products like bank statement loans, construction-to-permanent loans or down payment assistance programs, LOs have been forced to sharpen their swords and master the products to get buyers into homes in a brutal marketplace.
“You have to be able to switch hats and do all those products because if you’re not, you are not going to piece together enough units to survive in this market,” Groves said.