There is a simple guideline change that I believe could help more Americans become homeowners.
As a lender, I review credit reports all day long. One of the biggest obstacles to homeownership and affordability is debt. The Federal Reserve’s Q1 report on Household Debt and Credit shows that, on average, each American household has over $8980 in credit card debt, $12,480 in auto loans, $12,404 in student loans, and $4110 in retail cards and personal loans. This debt can make qualifying for a home and comfortably affording it a challenge. People are waiting for lower rates to make the payment more palatable, but what if there were another way?
There is a solution that helps both the homeowner and the homebuyer. The homeowner wants to sell the house, and the homebuyer wants to buy it, but the homebuyer cannot qualify because their debt-to-income ratio is too high, or they are overwhelmed by their total monthly payments. As the top VA purchase loan officer for the last two years, I have seen the solution. I utilize it for my clients every day. If the buyer was a veteran with a VA loan, I could have the buyer ask the seller to pay all their closing costs and up to 4% towards the homebuyer’s debt.
We do this all the time. Paying off the debt makes the house affordable. We have had sellers pay off clients’ cars, their credit cards, and recently, a seller paid off a veteran’s wedding. Amazing! The seller sold the house, and the buyer became a homeowner, entering homeownership with less consumer debt. It is a win-win situation.
So why isn’t everyone doing that? Simple, you can only do it with VA loans. Conventional guidelines do not allow the buyer to use seller concessions towards debt. That is the very simple guideline I would like to change. If conventional concession guidelines matched VA allowable guidelines, you would see a large increase in the number of people who would be able to buy homes. Currently, in many markets, we have builders giving out huge incentives to lower the rate, but if they could use those incentives towards homebuyers’ debt, they would make a greater impact in both the short and long run.
One concern some may have with this change is, “What if they take out more debt after closing?” That is a risk with any loan, and as someone who has been utilizing this method with clients for years, I have to say that it is rare that I see the buyer go and take out more debt. They are so happy to be free of debt and finally home that that is their priority. Yes, I talk with my clients a lot, and we talk about money and how, if the seller pays off debt, charging it back up would be a terrible idea. We talk about planning for repairs and the costs of homeownership. I say to everyone firmly that debt is the enemy of our future. I care about my clients for the long run, and having these conversations is critical.
I believe we are at a golden moment in many housing markets, where we can help more homebuyers and reduce their consumer debt. This is something I am speaking with my Veteran buyers about daily. A simple guideline change could open that opportunity to everyone.
There is no single solution to housing affordability. The only way we will get there is by making many moves towards making homeownership more affordable. Every guideline change, rate dip, or wage increase helps, and I think that as an industry, we need to start thinking about all the little things we can do to increase homeownership, as every action can have an impact. I think sharing ideas is the first step.
Often, we rely on the “powers that be” to fix everything and are hesitant to voice an idea. If I were at a level where I could wield that much power, I would want to hear ideas. Some will be good, some will be interesting, and some will be unrealistic; however, ideas are never the enemy. Thinking and looking for solutions is the key. Everyone has a seat at the table when it comes to keeping the American dream alive. Pull up a chair and share your ideas. We can solve this together.
Jennifer Beeston
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