- Educating buyers on the true financing costs helps remove a common roadblock to successful closings.
- Real estate agents and mortgage loan officers can partner to help buyers establish realistic budgets to avoid surprises in the homebuying process.
- Financing solutions, including low down payment mortgages and closing cost credits, can help buyers of all ages get a home. Seller concessions, as well, can help buyers avoid post-sale surprises and reduce costs at closing.
The story is familiar: hard-working real estate agent takes pre-qualified buyers to dream home. Excitement builds and contracts are signed. As the mortgage process begins, the clouds roll in.
Suddenly, the down payment that seemed adequate last week seems paltry after the loan estimate is presented: escrow, homeowners insurance, title fees, association fees, attorney fees.
This wasn’t expected, they say. This is not doable, they say. They do the math, and they back out. You lose a deal and a happy client, and the buyer loses the house.
Buying a home represents a huge financial leap, so when unexpected costs are presented after a contract gets signed, the heavy burden of arithmetic creates an insurmountable buyers’ regret that is beyond mere emotion; it’s about cash.
Agents and MLOs can partner for buyer satisfaction
Real estate agents, however, can proactively remove this common roadblock before it takes shape.
The first step is to establish a strong relationship with a reputable lender and mortgage loan officers (MLOs) who can provide guidance and budget recommendations before the first house is even shown.
This single step can save agents and their buyers a lot of time during the home search process by narrowing down targets based on true affordability.
Experienced MLOs can help set spending guidelines and can explain customary closing costs and financing fees that are often overlooked by buyers.
For those who mistakenly consider a pre-qualification letter as gospel, professional MLOs can discuss low down payment mortgage products and can assess and recommend the best mortgage options to meet buyers’ real needs.
This education helps buyers prepare for and understand true financing costs, gives agents a better sense of what inventory to show and offers mortgage options that can close the affordability gap for first-time and middle-class buyers.
Buyer expectation versus reality
Unexpected costs are a startling reality for many buyers. On a $260,000 mortgage, for example, closing costs of $9,000, including escrow, homeowners insurance, points and other fees would price some buyers out of the market.
Recent data spells out the need for educating buyers. A recent TD Bank Mortgage Service Index (MSI) showed that 17 percent of first-time buyers have not set aside money for unexpected costs during the mortgage process.
Millennial buyers, most of all, have little wiggle room for surprises. TD’s MSI also found that almost half of these buyers (44 percent) incurred up to $5,000 in unexpected costs.
Furthermore, in another survey from TD Bank, the First-Time Home Buyer Pulse, a full 65 percent of millennials indicate that saving money for a down payment is the biggest factor stopping them from shopping for a home.
The research also shows that though these buyers are also more likely to leverage unconventional options such as sharing a mortgage with a friend or relative to get into a home, they are still apprehensive.
How to remove obstacles
Knowledge, as usual, is power. To remove the affordability roadblock for millennials and other buyers, agents also must be aware that the days of the mandatory 20 percent down payment are over.
Today, many lenders offer attractive low down payment mortgage products that can help break the barriers to homeownership for qualified buyers.
Getting acquainted with MLOs and low down payment products in your region can help you bring more clients to the closing table.
Agents, of course, can help reduce expensive post-sale surprises for their clients by conducting thorough final inspections of properties. Seller concessions can reduce closing costs and can offer peace of mind when a home requires repairs.
Today’s unique market conditions make homeownership a smart financial move for those previously priced out of the market. Positive jobs data and low mortgage interest rates are powerful antidotes to rising apartment rents.
Many potential homebuyers could lower their housing costs and boost monthly cash flow by owning rather than renting, and they recognize this, but homeownership seems elusive when budgets are slim.
You already know that matching buyers to the right home is crucial, but you are experienced enough to realize that a signed contract is not a guaranteed closing, nor a happy ending.
Working closely with a reputable lender that offers your buyers competitive rates, a variety of products and experienced MLOs to educate and eliminate surprises can help you create stronger relationships, close more sales and create a clear path to homeownership for potential buyers.
Ray Rodriguez is Vice President, Regional Mortgage Sales Manager for Metro NY at TD Bank. You can follow him on LinkedIn.
