Why Credit Unions Should Offer Government Loans
Government loans can help CUs reach first-time homebuyers and individuals who may not have pristine credit.
When it comes to growing your mortgage business, one of the most effective methods for maximizing your reach and building your member base is offering a diverse selection of loan products. After all, a mortgage is not a one-size-fits-all commodity, so it’s important to have what potential borrowers need in order to gain their business.
While conventional loans have always been a popular choice, government loan options open the door to reaching even more potential homebuyers credit unions may be missing. Government loans are especially prevalent among the first-time homebuyer population and with individuals who may not have pristine credit but still desire owning a home of their own. In fact, according to Brian Buffini’s 2019 1st Biannual Real Estate Report, 30% of all buyers and 40% of first-time buyers choose a government loan (FHA or VA).
Popular Government Loan Options
Government loans are quite diverse and can meet the lending needs of a wide variety of individuals, from military personnel to young buyers to those living in more rural areas. There are three main types of government loan options: FHA, VA and USDA. These options are ideal for prospective buyers who may not qualify for a conventional loan due to having a lower credit score than required for conventional loans, or who simply have a small savings account that won’t cover a significant down payment.
FHA Loans: The Federal Housing Administration backs this type of mortgage and allows borrowers to put down as little as 3.5% when buying a new home. FHA loans are a popular choice for many first-time homebuyers who may lack sufficient funds for a large down payment.
VA Loans: The Department of Veterans Affairs works with private lenders to provide active and retired military, reservists and surviving spouses with an affordable mortgage option. VA loans give these buyers the ability to purchase a home with no down payment and generally have less stringent credit and income requirements than those of a conventional loan. They also offer the opportunity for no monthly mortgage insurance.
USDA Loans: The U.S. Department of Agriculture offers a mortgage assistance program by way of the USDA loan, which allows homebuyers in designated rural and suburban areas to obtain a mortgage with no down payment. There are certain requirements that must be met in order to take advantage of a USDA loan, but individuals don’t necessarily need to have perfect credit.
Why Government Loans are Valuable
Chances are, your local area is made up of a diverse population – what is your credit union doing to reach these potential buyers? In order to draw people in and grow your business, it’s important to expand your lending options and offer solutions that meet the needs of your entire community. One way you can do this is by placing an emphasis on a variety of loan options – doing so allows underserved individuals in your area who may not qualify for a conventional loan to have an opportunity to purchase a home.
No longer does less-than-stellar credit or a small down payment have to hinder potential buyers from making the most important investment of their lives. In fact, according to the 2018 Zillow Consumer Housing Trends Report, over half of all buyers put less than 20% down on a home – and it’s an especially common practice for the millennial generation. Just imagine how many more potential borrowers you could reach by offering lending solutions like these that allow for a smaller down payment!
It’s also worth noting that government loans are the most popular choice for first-time homebuyers. Attracting these individuals (often of the millennial cohort) to your institution by offering them mortgage solutions can encourage them to also work with you for other financial and banking needs, effectively growing your business to an even larger scale.
In order to reach as many potential borrowers as possible in your community, it’s important to offer the solutions and resources they’re seeking when it comes to financing a home. Never underestimate the value of providing a diverse portfolio of mortgage solutions – there is certainly a market out there for all types of loans, including government loans. If you want to be the borrower’s first choice when it comes to obtaining a mortgage, it’s critical that you have the loan options – and expertise – that meets their needs.
Tracy Marks is President of LenderSelect Mortgage Group . He can be reached at tracymarks@lenderselectmortgage.com.
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