Why We Do It: Making Financing More Affordable
Owning a home has long been part of the American dream. But in recent years, the cost of home ownership has due to a number of factors, a significant one being the ballooning costs of originating and financing a home.
That’s right: mortgage lending has gotten too expensive.
And that’s the cost of creating any mortgage, regardless of the loan amount.
Mortgage lenders have little choice but to pass these costs on to borrowers, which effectively means that every mortgage in the US is increased by nearly $10,000 to cover lender costs. That, in turn, means every American homeowner can afford less house than they could if mortgage financing were more affordable.
The median US home price in 2018 was $265,500, meaning the cost of financing its purchase was about 3.6 percent of the overall price.
But if you look at the prices of first-time homes, the cost of financing becomes even more problematic. In Illinois, for example, the median cost of a first home is $80,300, meaning the loan costs 12 percent as much as the house.
So how did we get here? And how are we going to get ourselves out? Here’s a little background, plus a path forward that will make home financing more affordable to everyone.
The Rising Cost of Financing a Home
For the last two decades or so, innovations in mortgage lending technology have promised to make the mortgage lending process easier and quicker while reducing costs for lenders (which would mean, by extension, lower costs for borrowers).
In reality, though, what most lenders have experienced is just the opposite: more technology that costs more money without any major improvements in the speed or efficiency of the home financing process.
As of this year, the average mortgage loan takes 44 days to complete. That’s longer than a lot of people in the industry had hoped, given the introduction of technological advancements like email, digital applications, e-signature capabilities, and others.
For borrowers, it’s especially frustrating, because a lot of technology development in the mortgage space has focused on streamlining the front end – that is, what borrowers experience. It’s commonplace now to be able to apply for a mortgage loan entirely online, in less than an hour.
But from there, there’s a 44-day wait until the loan closes, as mortgage lenders complete steps in unconnected back-end systems.
In some ways, in fact, the technological advancements in mortgage lending actually contribute to the high cost of home financing today: while new software and new technology have improved individual parts of the mortgage lending process, few efforts have been made to tie these parts together into a streamlined whole.
The result is the home financing system we have today, where digitized processes are still dependent on human oversight and review. This makes for a time-consuming and expensive home financing process.
Streamlining the Mortgage Process to Make Financing More Affordable
To make home financing more affordable, then, we need software that not only digitizes individual pieces of the mortgage lending process but also ties each piece together in a unified whole.
That is exactly what Cloudvirga does.
Our platform offers something materially different from what existing solutions promise: rather than digitizing a single component of the mortgage lending process, it connects otherwise disparate systems and ties them into the lender’s existing LOS, so that Loan Advisors can go from borrower interest to borrower commitment during an initial conversation, but with the precise data needed to offer the right loan product at the right price.
With our software, they’re able to do all of the following during that first phone call:
- Run credit
- Qualify the borrower
- Check debt-to-income ratios
- Pull products and pricing
- Lock rates
- Present several loan scenarios to the customer
- Run DU / LP with a single click
- Get the borrower’s e-consent
- Deliver disclosures
- Order a home appraisal and have the borrower post payment
That saves several days of the home financing process, and provides the consumer with an efficient and satisfying experience. Importantly, it also replaces outdated and error-prone methods of reviewing and verifying information. The resulting mortgage loan is faster and less expensive for lenders to originate.
This benefits everyone involved: borrowers have a more affordable way to finance their homes (and may even be able to afford more home when they’re paying less to borrow money); lenders can spend less on technology and lean out; and the economy gets a boost from possible increases in borrowing activity.
Without transformative technology that redefines the current, dated origination workflow, the cost of manufacturing loans will continue to rise. This makes home financing increasingly less affordable, which will continue to have a disproportionate impact on first time buyers and those buying lower cost homes. By leveraging the Cloudvirga platform, lenders can significantly upgrade their technology stack to serve borrowers more efficiently and with lower overhead costs. It’s a scenario where everyone wins.
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