5 things to know about the Hispanic American homeownership path

February 20, 2023 7:00 AM

Hispanic Americans will eventually make the majority of new homeowners in the United States, but lenders today may not be addressing all of their needs.

The demographic accounted for 9.2% of all mortgages in 2021, a slight uptick from the year prior according to the most recent Home Mortgage Disclosure Act data. Industry leaders predict a fast rise for Hispanic American homeownership, estimated to account for 56% of all new homeowners by 2030 according to a report from Freddie Mac.

Some mortgage players are making efforts to improve language access to the more than 39 million Spanish speakers in the country. Still, nearly a quarter of self-identified Latino and Hispanic borrowers who completed the mortgage process last year cite language as an impediment in applying, according to a survey by mortgage fintech Maxwell.

Lenders' push to reach prospective Spanish-speaking borrowers is more important than a year ago, when companies could rely on the sheer volume of applicants to be successful, said Rutul Dave, co-founder and chief technology officer at Maxwell.

"Going forward, as you need to ensure that each and every lead and each and every borrower that comes into your pipeline feels that trust when they work with you. That's amplified the need for having better support, especially when it comes to support for Spanish language," he said.

Maxwell last October surveyed 1,100 borrowers in the demographic who completed the mortgage process in the prior six months, with a majority of respondents also in the Millennial age range. National Mortgage News identified five insights about Hispanic American homeowners lenders need to know.

They’re working in overdrive to amass down-payments

The majority of HIspanic American first-time homebuyers, or 64%, told Maxwell they had to generate extra income for a deposit. Of that group, 43% said they took on an extra job while 31% worked additional hours at their job. An overwhelming 81% of those borrowers said the pressure to build generational wealth was the driving force to pursue homeownership.

Down payments remain a significant barrier for borrowers, with prospective homebuyers needing over a decade on a median income to save for a home. Despite the down payment concerns, Hispanic Americans ranked debt-to-income ratios and credit score challenges as their biggest barriers to secure a mortgage, Maxwell found. In a recent Consumer Financial Protection Bureau analysis of HMDA data, 45% of Black and Hispanic white applicants reported DTI as the reason for loan denials, the highest share since reporting requirements were implemented in 2018.

Nearly a quarter face significant language barriers

Of Hispanic Americans surveyed, 23% said language was an impediment in the mortgage process. Over a third, or 38%, said they were unable to find Spanish-speaking lenders in their region, and only 17% received translation services from a company. The problems resulted in major delays for Spanish-speaking borrowers, with 24% suggesting it took them 3 weeks or longer to fill out an application.

In a more concerning response, 51% of those respondents needed to hire a professional translator at an additional cost. The use of in-house processors or other employees to translate is expensive and time-consuming, and lenders otherwise don't recognize the hidden cost of translators, Dave said.

"The lender doesn't realize it, but it is usually one of the biggest reasons why borrowers consider abandoning their continuing with the loan application or continuing with the lender themselves," he said.

Several hurdles are making them abandon applications

Just over three-fourths of Hispanic American borrowers said their current lender has shown cultural empathy. However, the language barrier and resulting issues prompted 31% of Hispanic American borrowers to consider abandoning the already arduous application process, according to Maxwell.

Competitive rates and word-of-mouth drive their lender choice

Despite roadblocks in translation, Hispanic Americans still chase lenders offering the industry's most competitive mortgage rates, Maxwell found. Forty-eight percent of respondents chose their lender based on the best loan products and rates, while 25% chose businesses recommended by a family member, friend or colleague.

They’re choosing brick-and-mortar lenders with readily available support

Hispanic Americans opt for online-only lending options just 4% of the time, according to the survey, relying on national banks and community lenders for personalized support. Among the borrowers, 49% said they relied on their lender for financial education, with another 37% citing resources for affordable options and 36% leaning on lenders' technology support.

"Having an advisor, having a coach, somebody who can guide them and provide some input on things like that is really important," said Dave. "So if you were to just do a short of transactional-only online experience you miss out on those benefits and so lenders are looking to offer more and more of that as well."

Guaranteed Rate, CrossCountry Mortgage and the Federal Housing Finance Agency were some of the mortgage players last year that announced improved language offerings for prospective borrowers. Maxwell last July debuted its Spanish language loan application, which 20% of Maxwell's customer base has adopted, according to Dave.

Since the beginning of the year, Maxwell is seeing an 85% loan application completion rate among Spanish-speaking borrowers, on par with the completion rate for English-speaking borrowers, the company said. It anticipates the volume of Spanish applicants to rise as lenders are required by the FHFA to adopt the new Supplemental Customer Information Form requirements in March.