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How lenders can help first-time homebuyers qualify for a mortgage

 guides

 2 minute read

Published: Wed Jan 11 2023

By Sean Hundtofte

a modern home

Increase approval rates to help borrowers qualify and increase financial inclusion

Lenders are limited in the options available to help prospective homebuyers qualify for a mortgage. Mortgages are primarily denied due to high debt-to-income ratios. Counseling on DTI or credit score improvements can take hours. Solve Finance is the first and only fast solution to figure out how borrowers can quickly fit into a box and maximize the home they can afford.

Why first-time home buyers struggle to qualify for a mortgage

16% of mortgages were denied in 2020. The number one reason for denial is debt-to-income ratio, with 35% of those not qualifying for a mortgage because of DTI. But as we’ve found in our first year with live users, DTI is easily shiftable - we’ve found over $200/month in savings of monthly payments. Following DTI, credit history or score is the following biggest reason.

There are often racial disparities in mortgage denials, with black homebuyers denied at twice the rate of white homebuyers. Black and Hispanic borrowers have higher exposure to risk factors related to DTI and credit score.

Traditional methods of assisting first-time home buyers

Each lender has a different method of dealing with loan denial. In cases where the prospective lender is within a small margin of the required DTI ratio, lenders often recommend paying off any small loan balances to qualify for a mortgage.

Credit unions will often spend a long time counseling borrowers on potential refinancing and ways to increase borrower's credit score. This process can often take hours from the lending team.

How Solve Finance helps homebuyers qualify for a mortgage

What about tradeoffs between money available for the up-front purchase and monthly payments? Or shifting existing debts around? What credit score could make it all happen? Solve helps lenders decrease denials by providing actionable recommendations on how a user could improve their debt-to-income ratio. Our debt optimizer can optimize all existing debt, including student loans, credit cards, mortgages, and auto loans. Our solution is different from current alternatives as there is no other quick evaluation service to increase lender approvals. We superpower the credit report you have and provide the google-maps on how a user could fit particular criteria.

Our borrowing engine combines real-time price transparency and enriched credit data with financial intelligence. Our solution differs from current alternatives because we advise across debt in one consolidated hub and automate any optimization that only very sophisticated financial advisors or customer service professionals might provide.

A focus on inclusion through debt optimization

Homeownership is a key to building generational wealth. However, Black and Latinx experience higher interest rates across their debt profile. Generally, the US's approach to regulatory policy has unfortunate distributional effects that exacerbate inequity – higher income consumers refinance quickly, while lower income earners get left behind. Black borrowers are less likely to refinance than white borrowers (Urban Institute 2022).

Solve Finance changes this. We want to turn everyone into perfect borrowers by solving the complicated financial problems of shopping, refinancing, and financing a home. Therefore, Solve Finance's debt optimization is a great addition to lenders' diversity, equity, and inclusion practices.

Solutions available by Solve Finance

Solve Finance's debt optimization for lenders is customizable and can be offered either as a client-facing solution or a tool for Loan Officers. Solutions are available through borrower-facing landing pages, pre-denial LO-facing tools, or as an API.

Request a demo with Solve Finance to discover how you can help more first-time homebuyers qualify for a loan.

By Sean Hundtofte

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