AI Could Revive Starter Homes by Cutting Mortgage Costs, Says Better.com CEO

The accessibility of homeownership for American families has decreased, with the traditional starter home facing significant challenges from high prices and mortgage industry structures. Better.com CEO Vishal Garg stated that artificial intelligence represents a key solution to sustain entry-level housing options.

The U.S. is short nearly 4 million homes, according to Goldman Sachs. Factors include sky-high prices and zoning constraints, but Garg highlighted the mortgage process as a core issue. Loan officers, paid commissions of 1% to 2% on mortgage amounts, prioritize larger loans over those for starter homes under $300,000.

Garg said American consumers with smaller mortgage amounts do not get treated well. This contributes to the median first-time homebuyer age reaching a record high of 40 last year, with first-time buyers comprising just one-fifth of all buyers, according to the National Association of Realtors.

claimed Better.com's AI tool, Betsy, reduces loan processing costs from the industry average of nearly $12,000 to $3,000, per Freddie Mac data. This $9,000 reduction makes servicing smaller mortgages financially viable, unlike with human loan officers who avoid them.

“The AI enables everything to get a lot cheaper, to actually be able to service those [starter homes]," — Vishal Garg, Better.com CEO (Fortune). The AI provides customized financial advice, such as instructions to pay off specific debts to improve credit scores, helping borrowers qualify for lower rates. Poor credit history accounts for nearly half of denials for purchase mortgages under $100,000, according to the Department of Housing and Urban Development.”

homes are typically under 1,400 square feet, but new builds are 11% smaller and cost 74% more than a decade ago, according to LendingTree. A 2022 Urban Institute report found that just 35% of home sales under $100,000 were financed by mortgages. Builders struggle to construct affordably enough for small loans.

Other barriers include strict zoning laws encouraging large lot sizes and builders favoring higher-margin larger homes, as noted by housing expert Dennis Shea at the Bipartisan Policy Center.

“You have zoning requirements that have encouraged large lot sizes,”

believes AI can democratize financial coaching, offering advice typically reserved for wealthy clients to younger and underserved buyers. He stated that AI will "totally" solve the housing affordability crisis by compressing paperwork and saving borrowers significant amounts, such as $9,000 per mortgage.

Many young people rely on family assistance or wait for lower rates and more stock, as homebuying feels like a fantasy reserved for middle age. While mortgage costs are a factor, experts often emphasize zoning and builder incentives as primary culprits in the shortage of starter homes.