Buying a home has never been harder. Some fintechs say they can help.

Home affordability is at a near 50-year low for Americans, according to the Federal Reserve Bank of Atlanta. This is a result of a confluence of factors including low housing supply, high home prices and a challenging mortgage rate environment for homebuyers, according to Foyer CEO Landy Liu.

Foyer is a startup in New York that offers a savings plan for first-time homebuyers. It's one of several fintechs trying to help struggling consumers buy their first home. Another, Divvy Homes, offers a rent-to-own model — people rent a home owned by Divvy, and a portion of each month's rent goes toward a down payment on a mortgage. Esusu reports rent payments to credit bureaus to help renters establish credit. Tomo Mortgage says its mortgages have lower fees and interest rates than traditional banks.

Not to be outdone, some banks and mortgage providers are also trying to give first-time homebuyers a break. Southern Bancorp, a Community Development Financial Institution based in Arkadelphia, Arkansas, is launching an initiative to make $500 million worth of mortgages to low- and moderate-income borrowers in rural and minority communities, CEO Darrin Williams said in an American Banker podcast that will air Wednesday.

"Construction costs have risen, housing supply is shrinking in many urban, underserved communities," Williams said. "When you have a shrinking supply, prices go up, so that clearly is part of the problem. There are a number of things that have exacerbated the [lack of] opportunity for people to buy a home. And those are things that we work on every day to try to make that dream of ownership possible for families." 

Why buying a home is so hard

"I've been at a number of industry conferences, and I'm talking to friends of mine who are in the business and everybody has a story about their kids or their niece or their nephew or their grandkids that are struggling to buy a home for the first time," said Joel Bruckenstein, president of consultancy Technology Tools for Today. "The cost of homes obviously has gone up faster than a lot of people's ability to earn money. If you've got student debt and your credit rating is not so good and you've got a car loan and student debt to pay, it's really, really hard." 

Another factor is that many people lack the basic understanding of how finance works, leading them to pay far too much in interest charges, especially on credit cards, he said. 

"They're just not managing their finances correctly," he said. 

Bruckenstein says the homebuying market is made up of three distinct kinds of potential buyers. The first are those who have little money and are renting, homeless or living out of their car and need serious financial help. 

"The banks are not going to be able to address that, software can't address that," he said. "They basically need charity, such as Habitat for Humanity."

Other kinds of potential homebuyers are people with good jobs — emergency room nurses, military members, teachers and the like — who need some financial assistance, such as down payment assistance, he said. 

"That's the demographic that I think is exciting because I think they can be helped," Bruckenstein said. The third segment is people who have no problem buying a home.

Rising housing costs and mortgage rates and dwindling affordable options mean renters, immigrants and minority groups find it harder to break into the homeowner market than ever, said Esusu co-founder and co-CEO Wemimo Abbey.

What fintechs are doing

At Tomo Mortgage in Stamford, Connecticut, CEO Greg Schwartz says the answer to home affordability is to make mortgages themselves more digital and less expensive.

"Misleading mortgage rate information and excessive fees for things like processing cost new homebuyers upward of $36 billion last year alone," Schwartz said.

Tomo Mortgage uses AI to automate the homebuying process to become faster, more accurate, more honest and less expensive, he said. 

"First-time buyers can save roughly $5,200 on the purchase of their first house," Schwartz said. "For many people, that's cutting the cost to close in half." 

New York-based Esusu reports renters' on-time payments to credit bureaus, to help them build credit. 

"In the U.S., 45 million people either have no credit or possess insufficient credit profiles, directly impacting their ability to qualify for mortgages with fair terms," said co-CEO Abbey. "This credit gap leaves many hardworking renters unable to build the financial track record needed for homeownership."

Esusu has collaborated with Fannie Mae and Freddie Mac to report consumers' on-time rent payments to bureaus in such a way that they are considered in mortgage approval decisions (late or missed payments are not reported). Esusu has done this for a half a million renters, Abbey said.

"Fannie Mae and Freddie Mac's recognition of the significance of including rental payment history data in mortgage underwriting signifies a shift toward a more holistic and inclusive approach to assessing creditworthiness and access to homebuying," Abbey said. 

Esusu has created more than 100,000 new credit scores, boosted existing scores by an average of 36 points, and unlocked nearly $21.9 billion in new credit tradelines, including 33,000 mortgage loans, he said.

Foyer offers financial guidance and first-time homebuyer savings accounts to help people save enough for a down payment. It is currently helping more than 10,000 first-time homebuyers move toward homeownership and dozens are becoming homebuyers, Liu said. 

The app helps younger would-be homebuyers gain confidence through personalized guidance, hombuying education and financial products. We're investing heavily into our app, which is providing members personalized recommendations to help them save more for their first homes through discounts on real estate services, down payment assistance recommendations and by creating better savings habits." 

One startup Bruckenstein knows of that is still in stealth mode is developing financial planning software strictly for helping first-time homebuyers figure out how to buy a home. It will analyze a potential borrower's current cash flow and determine what steps that person would need to take to qualify for a mortgage in the future. For instance, a person who is maxing out their 401(k) contribution may be better off contributing to the 401(k) up to the match and put the rest of that money in a homebuying fund. 

"What none of these guys will tell you when you go on a website is whether you'll actually qualify for a mortgage," said Bruckenstein. "There's a million reasons why you might not qualify." The startup will also help people raise their credit scores, which will help them qualify for credit more readily and get a lower mortgage rate and less expensive insurance.

There's room for all these approaches and more, said Kelley Halpin, co-founder of Mesa, which provides a rewards program for homeowners. Mesa recently exited stealth mode with $9.2 million in seed funding from several venture capital firms and $2 million in venture debt from Silicon Valley Bank, a division of First Citizens Bank. 

"My co-founder Peyton Hayslette and I saw how consumers receive incentives and loyalty rewards for everyday purchases like coffee, airline tickets and hotel stays. But the one thing you spend the most on — your home and all that comes with it? No one rewards that spend," said Halpin when the startup was announced. "Our vision for homeowner membership is to give you value back for every dollar you spend on your home."

Homeowner members get 1% of their loan value in rewards points at closing (so $5,000 of value on a $500,000 loan). The Mesa Homeowners card offers rewards on monthly mortgage payments, as well as everyday spending like gas, groceries, HOA fees, utilities, repairs, and home goods and services. Mesa Points can be redeemed at partner brands.

"I think all those things are needed," said Southern Bancorp's Williams on the podcast. "I think they are helping."

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