Diana Rice-Wilkerson has dedicated her career to helping underserved homebuyers. Here are the most common obstacles and how to clear them.
Today’s housing market is tough for most homebuyers. But it’s particularly challenging for underserved homebuyers who come from communities that were historically marginalized or excluded from financial opportunities.
I know because I’ve been in the mortgage industry for decades, and I’ve built my career around helping underserved clients become homeowners.
Why is homeownership important for underserved homebuyers?
Homeownership is fundamental to wealth creation and establishing generational wealth. But most of the homebuyers I work with don’t realize that at first. They want to buy homes so they can have a place to call their own, and so they can create a home for their loved ones.
They often don’t realize that buying a home can unlock doors to wealth-building that they never even considered opening, or even knew existed.
But I do – and that’s why I’m committed to helping them buy homes.
Right now, there are many conversations happening about generational wealth and making homeownership accessible to more people. Here’s what I’ve learned about the barriers underserved homebuyers face and how to overcome them.
Credit is the #1 barrier
The biggest challenge I see among underserved homebuyers is credit. You need to meet a minimum credit score to qualify for a mortgage, and your credit score is a reflection of your credit history.
Unfortunately, many of my clients don’t understand how credit works. They might have a credit card or a loan, but they don’t know how their payment patterns affect their credit score. Nor are they aware of how to build credit, including through on-time payments, strategically opening new accounts, and disputing inaccurate information on their credit report.
Credit is essential to qualifying for any type of financing, mortgages included. So when a borrower comes to me and their credit score is low or they have some red flags on their credit report, I work with them on ways to improve their credit score and get to a place where they can qualify for a home loan.
The skills and strategies we discuss are ones they use to buy a home, but they can also apply them to other areas of their financial lives as well. That sets them up for success as homeowners, as they can make informed decisions about their money and goals.
Trust is everything for underserved homebuyers
In the communities I work with in Indianapolis, my clients want to work with someone they know has their back.
I focus on cultivating trust with them through helping them strategize on how to qualify, finding out what assistance they need, and connecting them with resources that can help them on their journey.
My buyers know I’m there for them, and that’s what they look for in any kind of lender – a company that values and respects them and will invest in their success.
I’m a member of the Central Indiana Realtist Association (CIRA) – a chapter of the National Association of Real Estate Brokers, which was founded by minority real estate professionals in the 1940s when they were not allowed to join the National Association of Realtors. As such I am committed to helping applicants buy a home.
"My clients want to work with someone they know has their back."
So much so that my colleagues at CIRA and I developed a Lenders Council referral program. Through this program, if one of us cannot approve a borrower, we can send them to another company that might have a program that works for them.
Too often, a borrower gets rejected by one lender and doesn’t realize that they might find opportunities with others. Lenders have different programs and requirements, so one might approve a borrower while another denies them, and vice versa.
Our Lenders Council lets prospective homebuyers know there are options and that just because one company said no doesn’t mean they will always be rejected.
Rejection is painful and dispiriting, and not understanding that they can apply elsewhere can cause people to give up on their homebuying dreams altogether. That’s what we try to prevent.
Debt-to-income ratio holds many buyers back
Oftentimes, I’ll work with a borrower who took out a car loan on a vehicle to get to work, and the payment is $400-500 a month. That’s a big chunk of income from somebody who’s making $40,000 a year.
By the time you add a mortgage payment on top of that – let alone any other monthly debts – and their debt-to-income ratio (DTI) is at its max.
The easy solution might appear to be to tell clients not to buy a car before they buy a home. But they need the car to get work, because they need income to purchase the house.
My goal is always to talk with them before they buy the car so we can find a way that they can get the car and get the house. Maybe they’re willing to save up and pay cash for an old car to avoid a monthly car payment.
Depending where they’re buying and what their income level is, they may qualify for down payment assistance* toward the home. So they can use some of their savings to buy the car and keep their debt-to-income ratio low and use other forms of assistance to buy the house.
That’s not always an option, of course. But I like to get to know my clients and work with them to find creative solutions that keep them on track to become homeowners without straining themselves in other areas of their lives.
Student loans are a major hurdle
Many borrowers I meet struggle to buy a home because they have student loan debt, or because they don’t realize that they can buy a home even if they have student loans.
In fact, it is possible to buy a home while you are paying down student debt. The U.S. Department of Housing and Urban Development (HUD) actually made it easier to qualify for an FHA loan with student loans last year.
HUD determined that lenders can use borrowers’ actual monthly payment amounts to calculate their debt-to-income ratio. Previously, they had to use 1% of the loan balance toward the monthly DTI, even if the borrower’s actual payment was significantly less.
The change was meant to make homeownership more accessible to underserved communities, which are especially hard-hit by student loan burdens.
Homebuyers can also qualify for conventional, USDA, and VA loans with student loan debt.
People don’t understand the advantages of buying
You hear it all the time – owning a home is a huge responsibility. And it is! But it’s also a great way to create stability, especially when it comes to your housing expenses.
I’ll often talk to people who see no downside to renting, since they’re not responsible for maintaining the property and the many other responsibilities that come with owning.
But rent can increase year over year. You can’t control your housing budget when you don’t own the building. With a fixed-rate mortgage, you know what your monthly payment will be for as long as you have the loan.
Owning also means you’re building equity, which can be leveraged for other financial goals in the future. I spoke with one borrower who told me he realized that renting was essentially paying for storage plus utilities. That’s a pretty good way to sum it up.
The bottom line
Underserved communities have been underserved for far too long, and they deserve the benefits and rewards of homeownership. Now more than ever, it’s critical that they understand how to become strong borrowers and that buying a home is within their grasp.
*Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.