How to put 'more' in mortgages.

It was 10 a.m. on a Thursday morning and Jerry Dwyer* was on the phone with the bank again. This was already the third call this morning and he was sure it wouldn’t be the last.

He and his wife, Melissa* had decided to move to Austin, Texas at the beginning of 2021, but after Jerry took a new job and experiencing Austin’s hyper-competitive market, the couple decided to look elsewhere and build.

This decision, however, would only escalate their housing woes. The COVID-19 pandemic had ballooned lumber prices, which pushed the cost of building out of their budget. The couple are now close to moving into a new house, but difficulties and inefficiencies of the mortgage process caused months of sleepless nights, headaches, and anxiety.

Buying a home is one of the largest purchases a consumer will make in their lifetime, and it can be a difficult experience for everyone from the first-time buyer all the way to the third, fourth or fifth property. Mortgage financing hasn’t changed much in the last several decades, but a human-centered approach can be used to simplify the process and remove the anxiety that comes with mortgages.

There are many reasons that buying a home can be troublesome. Banks are still weary after the housing crisis of 2008, and there is still a lot of economic uncertainty due to the pandemic. However, the integration of AI into the mortgage process can help consumers shop for a mortgage, lock in better rates and allow banks and lenders to provide the tools consumers need to make more informed decisions.

Jerry said that the frustration of selling, the worry of making a mistake and fear of missing out on a perfect house can be trying for anyone looking to buy.

“By the time we were ready to move, offers were going for $100,000 over asking,” Jerry said of the Austin housing market. “There was competition with all-cash offers. I was being advised to liquidate my 401(k) to be competitive and to waive appraisals, which, I was told, was part of the process. None of it made any sense.”

The banks are winning, but is it in the right way?

In its current form, mortgage lending is designed to play with the emotions of the buyer. From rate fluctuations to the fear of missing out on a “dream home,” each step of purchasing real estate puts the buyer at a disadvantage and keeps the power with banks and lenders. Each move an individual makes regarding their finances can end the deal instantly. Jerry said that due to the increased scrutiny of his finances and constantly changing plans, he’s had to write more than 40 letters to banks explaining his financial moves.

“I’m lucky because I’ve worked in the mortgage industry, so I kept pretty detailed notes on everything,” Jerry said. “I don’t know how anyone without experience could even keep up.”

A human-centered approach combined with advances in artificial intelligence can help put buyers back in control of the process. It can help guide them through the process, save up for a down payment and even find the best time to buy or refinance. It can also help new homebuyers better understand the process. There’s also a future where everyone can have an application on their mobile device that has real-time access to relevant financial documents, area real estate information, and current mortgage or rent details right in one place. Think of it like an Apple Wallet, but instead of holding credit cards or movie tickets, it has the tools and understanding to find the right property at the right price.

Obviously, there’s more to the real estate market than paperwork. There will still be a need for appraisals, inspections and other details, but we can at least simplify the qualification process, especially for those who do not have the experience and aspire to own a home.

Designed to frustrate

Carlos* is a first-time buyer. He’s 28, has a good job and is ready to buy. As a millennial, his first instinct is probably to visit a popular real estate website like Zillow or realtor.com to browse houses that are on the market. While on this website, he’s bombarded with opportunities to prequalify for a mortgage. Prequalification is a good idea see what might be in his price range. However, many first-time buyers don’t understand that you don’t have to take the first offer you get.

When buying something like a car, for example, consumers have very visible options because there’s typically another dealership nearby offering a similar vehicle. Dealerships must compete against each other to secure the sale. Mortgage companies are the same way, but many buyers don’t realize they can shop around. One bank might be offering 3.5% APY while a credit union is offering 3% APY. That little change in APY can add up to big bucks in the long run.

Half a point on interest may not seem like a lot, but it can add up when it comes to budgeting a mortgage payment.

In this example, the difference in the payment (not including taxes, fees, and insurance) for a $300,000 house is $162 with a 30-year loan. That doesn’t seem like much, but the higher interest rate may cause a buyer to settle on a less expensive abode. Historically, real estate values appreciate between 3.5% and 3.8% each year.

Let’s say a buyer was able to afford the $300,000 house at the 2.5% interest rate. In five years, its value would be about $356,305, assuming a 3.5% appreciation rate. If they had taken the mortgage at 3.5% interest, maybe they could only afford a $250,000 house. That property would be worth $296,921 in the same time period. While the homes appreciated at the same rate, the more expensive one had about $10,000 more in value over the same period. That’s a big difference considering that the average homeowner moves about every 13 years.

As home values appreciate, it’s important to get home buyers the most value, so they don’t lose out on future gains.

A future where both the bank & customer win. Is that really possible?

A human-centered user experience can not only streamline the home-buying process but take it into overdrive. No more scanning countless documents, uploading tax forms or countless back-and-forth phone calls with the mortgage agent.

Instead, a consumer will simply tell their smart speaker or their banking bot that they’re ready to buy and it will guide them through the process. Everything from documents to affordability is lined up for a human agent to verify. The BOND.AI Empathy Engine can see a consumer’s financial data and connect the dots of various aspects of his or her financial life to not only advise them to buy the right house, but also catalyze the buying process and ensure their quality of life in their dream house.

Simplifying the mortgage process is a win for the banks, too. Today majority of the banks focus on consumers like Jerry who qualify. But, what about Jack, Kristine, Cathey and millions who are not yet qualified? An Empathy Engine powered AI not only allows them to see in a much deeper sense of what customers may qualify for a mortgage but also how to help customers to qualify. Imagine the impact and revenue financial institutions can make. For consumers it also builds the trust factor, which the banks have lost big time, especially during the pandemic. Consumers can have the confidence that they are getting the best possible dream home and not being taken advantage of, or left wondering if they got the best deal.

Owning a house is part of the American Dream. But realizing that dream is far from reality for millions of Americans. It is a twofold problem, first to solve to remove the friction and noise in the home buying process and second, enabling consumers from all walks of life to buy a house. It sounds simple but when you throw regulation in the mix, it becomes even more complicated. Adopting a design thinking approach we at BOND.AI have designed a first of its kind process which has both speed and personalization to help your bank fulfill that dream for your customers. Click here to find out how.

* Names changed to protect anonymity

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