Nearly 40% of homeowners don't understand their mortgage options
Your next customers may know that they need a mortgage soon, but they might not have any idea how to go about getting one.
A new study from Citizens shows where the opportunity exists for mortgage brokers, and it revolves around mortgage education.
That survey shows that 63% of homeowners say they will likely need financing for either a home purchase or renovation in the next five years, but 39% say they don’t understand how financing options work.
Whether these customer just needs guidance to the right product or don’t even know where to start, brokers can be the guiding force for prospective customers.
Fabien Thierry (pictured top), head of home equity lending at Citizens, said this survey really shows where the mortgage industry still has work to do when it comes to education.
“It was very interesting, and it gives us collectively as an industry more specific information about where I think the work that is still ahead of us,” Thierry told Mortgage Professional America. “We think that is evolving, but this data really reinforces the point that we still have a lot of work to do.”
The importance of education
The survey discusses other areas where education is lacking among homeowners. In total, 27% said hidden fees are the most confusing part of the process.
Regarding using home equity products to assist in renovations, 32% said they would only use a home equity in an emergency, and 27% said they were either unfamiliar with home equity or had never looked into it.
Thierry said these numbers just reinforced the need for continued education of customers.
“Because when you’re seeing 27% of those respondents mentioning hidden fees or being confused about the process in itself, and 32% said that they will only use their home equity in a case of emergency, to me, that calls out something,” he said. “But collectively as an industry, we need to keep on investing. There are people still thinking about home equity as a crisis product, and not really like a planning tool.”
He said too many people look at products like home equity lines of credit as a product of last resort rather than a tool that can help reduce high-interest debt and renovate existing homes.
“I think it’s about product education and making sure that we frame it well in the way we present it to the clients,” Thierry said. “We need to create basic awareness about what products can be used as a financial tool, not just as a way to manage an emergency.”
How to educate homeowners
As far as how brokers can help bridge the education gap, Thierry said it starts by getting to understand what the homeowner is looking to do.
“I would just recommend starting to understand what your equity position is and then the estimate of the project,” he said. “When they understand what they have available, then they can understand the cost of accessing it today. For the clients who have been living in their home for a couple of years, they’re most likely benefiting from building a lot of equity.
“Understanding what they have as an equity position will allow them to know how much they can afford. Then, afterwards, that allows them to enter that renovation phase where they can plan with your contractors or take on a project directly.”
Some homeowners might be trying to time the market and wait for rates to drop, but that might leave customers waiting for a while. This could cause the cost of materials to rise in the meantime, making a potential renovation more expensive. This is where a second lien product like a HELOC can make a lot of sense.
“It’s tough trying to time the market and wait for rates to go down, where we know that contractor costs, the inflation overall, the cost of building materials, all that has been increasing,” Thierry said. “It’s a great time to leverage a product like a home equity to assess those needs and then move forward with a renovation.”
While there were some discouraging signs in the Citizens survey, Thierry said the one encouraging thing is that the housing market has continued to roll along in the face of many headwinds.
“I think what this survey shows is that, while there are still some challenges out there with the housing market and overall rate situation, it’s good to see homeowners being resilient and staying very engaged, rather than waiting for the perfect condition and the perfect rate to make those financial decisions.”
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