The Empowered Homebuyer: Arming Borrowers in the Next Era of Homeownership

Danny Leemputte

Published in

Kellogg Business Journal

5 min readApr 11, 2024

How emerging technology and AI can flip the power dynamic in homebuying.

There are few things more daunting than purchasing a home.

During my 4.5 years working in the residential mortgage industry, I interacted with dozens of mortgage applicants, many of whom ended up being denied for one reason or another. It’s difficult enough to tell a customer that they may not get the home they want, but it’s uniquely demoralizing to hear the news after years of accruing savings and imagining life in their dream home. As hard as we tried to get them to the finish line, customers often took this message as an affront to their personal sense of worth.

And who can blame them for feeling that way? The underwriting process often feels arbitrary to applicants. What a customer sees on her paycheck is not necessarily looked at the same way by an underwriter. Mortgage financing is notoriously complex, and a slew of federal regulations were necessary just to prevent the kind of insidious institutional behavior that contributed to the 2008 financial crisis (1). As reasonable as lenders’ own risk tolerances and underwriting guidelines may seem to be, they’re still challenging for aspiring homeowners to understand.

The Current Pace of Mortgage Innovation

Technological innovations in the home financing industry give us reason to be optimistic for the future of homeownership. Machine learning digitizes a lending process traditionally run on paper, digital tools support humans in monitoring fraud risks, and automation is trimming down slow, labor-intensive processes — all for the betterment of lenders and their borrowers (2).

However, as new use cases for artificial intelligence abound, firms appear to be focused on applying this technology to preexisting efforts, namely to maximize efficiency and reduce operational costs. While this approach will certainly have its advantages, it lacks imagination. Proper application of AI gives the home financing industry (and financial institutions broadly) more opportunity than ever to empower everyday consumers with truly deep transparency into their financial health, demystify the opaque world of lending standards, and most importantly, provide consumers with tools to help them effectively advocate for themselves in the lending process.

There is some precedent for a “self-serve” model in financial services (3), and accessible tools such home-affordability calculators will only become more sophisticated. The company I worked for prided itself on its robust digital application process that encouraged interaction with human service reps, but the most digitally-inclined customers might easily manage their application entirely online. Even so, only 29% of lenders plan to roll out AI tools in the next two years, and those who do overwhelmingly cite “operational efficiency” as the primary motivator, with “borrower experience” lying in the shadows as a passing consideration (4).

Faster loan processes and lower costs undoubtedly benefit borrowers. Yet despite the best efforts of lenders and financial technology companies to move the industry forward through speed and efficiency, the central problem of anxiety in homebuying persists. Even with incredible technological changes over the past several decades, one survey found that homebuying is still more stressful than dating for 59% of homebuyers (5), and mortgage approval rates still hover at a mere 53%, down from 70% in 2010 (6). The current housing market, with low housing supply (7) and higher interest rates (8), stands to exacerbate borrowers’ perceptions of insurmountable odds in the homebuying experience. Younger generations increasingly feel locked out of homeownership, what for decades has been the defining feature of the American Dream.

With ever-improving technology, lenders must resist the temptation to focus solely on the speed, efficiency, and accuracy of increasingly-automated processes. There is enormous value to be unlocked in this space should an alternative approach be taken: to fundamentally “arm the borrower” instead of simply making the process easier for the lender. Historically, lending has essentially been a defensive endeavor for the consumer, where she applies for a loan and defends her creditworthiness.

Empowering the Borrower: A Vision for the Future

A new (and arguably better) approach would be to use technological developments to empower consumers in making independent, “offensive” financial moves, supporting their ability to comprehend the totality of their financial profile, make their case to financial institutions, and save time and money in a high-stakes transaction such as a home purchase.

An alternative future would flip the power dynamic of financing transactions. Instead of me having to drag some poor borrower through the loan process, imagine instead that borrower confidently tells me that she qualifies, articulates why that is the case, and already knows what documented proof to provide. Not only has this borrower saved both of us time and effort, but she’s also just made my job obsolete.

This is the ultimate “self-serve” model within a homeownership industry that stands to make the necessary investments to truly empower consumers. Robo-advisors may end up being the first step in this direction, but a more mature solution will be able to access a consumer’s financial profile in totality, synthesize that information, and communicate to educate in an understandable way. The sophistication and format of chatbots do not yet meet that standard. However, if someone decides to pursue this model, the benefits will extend beyond the mere efficiencies the industry currently seeks. Borrowers would finally access that aspirational thing that has eluded them for too long — true confidence and informed certainty in the homebuying process.

With AI, this future is possible, driven by its ability to parse vast amounts of information and distill it down to individuals’ idiosyncratic knowledge levels. Still, AI must evolve well beyond the chatbot format to tackle this herculean task. Consumers must be comfortable giving one tool virtually unrestricted access to their financial lives. And there are certain aspects of economic life that technology alone cannot solve, including how to reconcile the unique risk tolerances across lenders who themselves may have internal disagreement about the interpretation of their lending guidelines. Perhaps most importantly, AI still cannot remove systemic bias from financing decisions, if it doesn’t unwittingly exacerbate it (9).

The Takeaway

This future of the “offensive borrower” is theoretically possible and arguably the most effective way to begin removing the worst pains from the homebuying journey. Today, there are factors at play that technology cannot solve, from the physical shortage in housing to biases that have creeped their way from our institutions into our AI algorithms.

Nevertheless, the next winners in homeownership, and perhaps in consumer finance broadly, will not be defined by their marginal contributions to efficiency or speed-to-close. Instead, those who will create lasting value for this country’s large, frustrated crowd of aspiring homeowners will win by putting the tools of industry in the hands of everyday consumers. Americans are willing to work their way toward homeownership, they’re just tired of sacrificing their wellbeing to get there.

You can reach Danny, 1Y ’24, on his LinkedIn.