For many potential homebuyers, particularly millennials and first-time buyers, recent trends in the real estate market make financing a home seem daunting at best and impossible at worst.
According to the National Association of Realtors (NAR), the median existing-home price in March 2018 was $250,400 — an increase of 5.8 percent from March 2017. This increase marked the 73rd consecutive month of year-over-year gains in existing-home prices.
At the same time, interest rates on long-term mortgages are also increasing. At the end of April, the average rate on a 30-year fixed mortgage was 4.58 percent — the highest it’s been since 2013.
This combination of factors has significant effects on housing affordability, which declined 5 percent in Q1 2018, according to the Housing and Mortgage Market Review from Arch Mortgage Insurance Company.
The agent’s role
Understandably, many consumers are worried not only about how they can afford to buy a home, but also how they’ll find the financing they need for the purchase.
As real estate agents work to help their clients find a home in competitive and low-inventory markets, it is more important than ever for agents to know all of the various financing options available to purchase a home — particularly new loan types that may help borrowers who don’t qualify for a conventional mortgage.
Real estate agents who research and partner with the right lending experts can help more clients and their own business in the process.
Partnering with lenders
Like real estate brokerages, mortgage lenders vary widely in the products and services they offer. This is why real estate agents should know what financing options are available in order to work with the right lending partner for each client.
Although working with a buyer who has a large down payment and perfect credit is nice, those clients are not the only ones capable of buying a house. Knowing lenders that work to find the right loan for each borrower can increase the likelihood of a closed sale and that of a satisfied customer.
Homebuyers fit into many credit categories, and knowledgeable real estate agents can help improve their buyer’s chances for a successful purchase by recommending a lending partner with the right type of loan products for their clients.
Serving various homebuyers
For example, if homebuyers have good credit and a decent down payment, they will likely qualify for a conventional loan, which is readily available from most lenders.
If buyers have good credit but a low down payment, they may be a good fit with a lender experienced in government loans from the Federal Housing Administration (FHA), which offers programs with down payments as low as 3.5 percent.
If the buyer has challenging credit but a good down payment, there are new non-prime loan options available to them today from lenders who specialize in those types of products.
For some real estate agents, working with clients with challenging credit may be unfamiliar territory. This segment of potential homeowners has been particularly neglected in the years since the housing crisis and represents a significantly untapped market, for agents and lenders alike.
In fact, this past March, borrowers with credit scores of 700 or higher represented a whopping 71 percent of purchase loans closed, while borrowers with credit scores below 600 made up less than 1 percent, according to Ellie Mae. This is changing, however, as new products become available, allowing these potential homebuyers who have less-than-perfect credit to move from the sidelines of the housing market and become homeowners.
These products are aimed specifically at this segment of buyers who don’t meet the requirements for conventional loans or government loan guidelines for various reasons, but would still be responsible homeowners.
The benefits of partnering with a lender
With careful research, agents can find responsible lenders to partner with to meet the needs of their current clients and build clientele in this segment of underserved, credit-challenged buyers.
Agents should actively work to establish relationships with lenders that are rising to meet the increased demand from borrowers previously left out of the housing market. These lenders should offer a wide range of financing options and have experience with the variety of loans these clients need, from government programs to non-prime products.
In doing this, agents can confidently help their clients answer the question of whether or not they can actually finance the home they desire.
Ray Brousseau serves as president for Carrington Mortgage Services. Please follow Carrington on Twitter or LinkedIn.