Buyer Niches: Tap Into Emerging Markets

Innovative credit-rating and lending programs allow more consumers to become home owners.

April 1, 2006

America’s home buyers are becoming more diverse every day. Joining the ranks of traditional families are “emerging markets” of low-to-moderate-income households, immigrants, and ethnic minorities.

These consumers face many challenges on the road to home ownership, especially if they lack a traditional credit history. In the past, this has excluded them from mainstream home loan products.

Fortunately, new credit-rating programs and lending options are making it easier for buyers with thin or non-existent credit histories to secure home financing. By educating yourself on these options, you can pass the information along to prospects who are concerned they won’t qualify for a mortgage and help open the door to home ownership.

The Expansion Credit Score

Most real estate professionals are very familiar with how traditional credit scoring works. Information on consumers’ financial obligations and performance — such as credit card, car loan, and mortgage payments — are sent to each of the three major credit scoring bureaus: Experian, TransUnion, and Equifax. These agencies then use the data to calculate a credit score, which mortgage lenders consult to determine an applicant’s credit risk.

But if home buyers have never opened a credit account, they will be missing from credit bureau files and will not be assigned a credit score. Approximately one-fourth of all adult U.S. consumers either lack credit reports entirely or have credit reports with too little information for making a good prediction of credit risk, according to Fair Isaac Corp. of Minneapolis.

These consumers are often classified as cash-basis borrowers and do not qualify for competitive lending products and services. What the buyers may possess, however, is a strong track record of employment, paying rent, utilities, insurance, and other monthly payments. It is for this growing audience that mortgage companies are presenting new programs that analyze alternative financial histories.

Lenders that develop products specifically for the emerging market of cash-basis borrowers are turning to FICO’s new Expansion credit risk score. An Expansion Score looks at information that is not part of a traditional credit file, such as pay-day loan cashing and check payment histories, to help lenders evaluate risk.

Help Customers Get Qualified

When working with a new customer, you may easily see their preference in housing style and neighborhood, but what may be less apparent is the condition of their credit history and ability to secure traditional financing. To avoid costly delays, encourage your buyers to meet with mortgage counselors and financial institutions to assess their credit condition and lending options.

It is important for buyers to understand their options leading to positive financial and real estate decisions. Web resources, such as and the U.S. Department of Housing and Urban Development’s Homes & Communities, provide valuable lending and financial information. Local financial institutions also may staff credit counselors who can walk potential buyers through the various lending programs.

Keep Your Knowledge Up to Date

Through education and training programs, you can stay informed of the latest lending programs and legislature that may affect funding for home buyers. This can be done informally by reading the business sections of newspapers and financial magazines. You also may consider registering for a structured real estate training and education program.

As the emerging market of home buyers with non-traditional credit scores grows, so too has the financial industry’s response. By staying on top of these new options, real estate professionals can play a valuable role in the lending process.