Closings by Homeownership Counseling

Written By: Bonnie Wilt-Hild, Op-Ed Writer

When we say homeownership counseling, many of think of traditional counseling that a borrower might receive prior to the purchase of a new home, in many instances to receive grant funds, or perhaps homeownership retention counseling that a homeowner might seek should they be facing foreclosure but very seldom do loan originators consider homeownership or “credit counseling” as a means to generate new business. In the current mortgage environment it is difficult to get the most qualified borrower approved let alone a borrower that may have experienced some recent financial difficulty, however credit counseling or homeownership counseling as I like to call is a viable option for some.

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Granted, there will always be those borrowers with a long term history of financial mismanagement whose credit scores are so far below the required median that no amount of credit counseling will help to cure however I do tend to find that the large majority of borrowers that have experienced recent financial difficulty due to unforeseen extenuating circumstances may very often be counseled over a short period of time in order to increase credit scores to an acceptable level which may allow them to purchase a home within the foreseeable future. When I say foreseeable future I mean within 6 to 9 months of initial contact with the loan originator. I already hear those originators saying, “but I need to get paid this month”, and I hear you, however what I am talking about building a long term book of these types of borrower by which a few or several each month would become eligible for loan closing.
For most originators, getting started is going to be easier then you think, because I am sure the large majority of you have plenty of applicants each month that simply do not make the grade and those are the applicants that you want to place in your “credit counseling” program. Simply explain to those borrowers that based on their current information they would be ineligible for a mortgage at this time however they are eligible to receive homeownership counseling designed to have them mortgage ready within the next 6 to 12 months. Once the borrowers agree to participate in the program, you embark on their journey of credit repair and education regarding responsible and affordable homeownership. Review their credit reports with them and set monthly goals which allow them to pay down revolving debt or payoff collections in order to increase their credit score. Set reasonable goals for monthly savings so that they may continue to accumulate the necessary funds for closing. If they will apply for public grant funds for payment of down payment and/or closing costs, refer them to the appropriate homeownership counseling agencies to complete this leg of education as many public grant funds such as NSP funds require this type of pre homeownership education prior to execution of contract of sale. Additionally, contact your business partners such as real estate agents and request that they refer these types of borrowers to you as you have programs available that will have them mortgage ready within a short period of time, this is just as beneficial to them as it is to them, if you can get them qualified, they can sell them a property.

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In closing I would like to say that there are still at least three mortgage programs available for these types of borrowers, those being FHA, VA and USDA. All of these programs allow for a 620 minimum median credit score in most cases as do the investors in the secondary market who are purchasing them and honestly it does not take that long to increase a 590-600 credit score to an acceptable level where these programs are concerned. Often times many of the states have departments of housing and community development that offer bond money to first time homeowners with down payment assistance grants which also have credit score requirements similar to the ones stated above so before you drop the next file it the drawer marked “Rejected Loans”, think about the ways you may be able to assist these borrowers for possible future homeownership. Have a great week all!

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".


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