The allure of home ownership speaks to our hearts and our minds. The putting down of roots, of creating a degree of permanence and commitment in the chaotic, uncertain midst of daily living and working, and it tickles the fantasy of making a great investment that will generate a positive financial upside. Often times our heart says “Yes, yes. I love this house. I want this house,” while our mind sees its much needed repairs, leak stained walls and skyrocketing maintenance costs.
Real estate agents can well serve the mind-side of their client’s thinking by guiding them through a series of key issues involved with home ownership. However difficult these issues may be for the client to face honestly and directly, the client will eventually thank their agent for bringing such issues to light before the client commits to the costs home ownership rather than after.
- Ask the client how long she/he plans to stay in the area. A five year time frame is optimal because it gives the client a fair amount of time to recoup her/his transaction costs and perhaps realize a gain in value. If the client thinks he’d/she’d move at the drop of a hat for a better career opportunity, it’s probably better for them to rent or buy something that would allow them to easily rent if they had to leave.
- Let the client know that lenders will want proof of a steady, reliable income stream and a stable employment history of at least two years.
- Make sure the client is aware of and recognizes the importance of his/her credit standing. If their credit score is marginal, encourage the client to hold off on purchasing a house until she/he has improved it or, if the client “must” have the house now, encourage the client to work on improving that score so she/he can refinance the mortgage with a lower rate loan in the future. The difference between a credit score of 640 and 760 amounts to more than $165,900 over a 30 year mortgage term on a $300,000. house.
- Make sure your client is aware of all the costs of homeownership, not just the down payment on the house. Mortgage payments, property taxes, homeowner’s insurance, homeowner’s association fees, routine maintenance and up keep (usually averages 1% of the cost of the home annually), the possibility of having to install a new roof or tankless water heater…the costs of homeownership go on and on.
- Make sure your client knows whether or not the house is a good investment in terms of neighborhood value, comparable prices in the area, proximity to good schools, etc.
Realistically, home ownership is an investment in quality of life rather than in financial improvement. Tell the mind-side of your client’s thinking that prices tend to grow slowly, that they’re heavily influenced by short term and regional trends and that real estate prices tend to go down as well as up. The heart-side of your client’s thinking will take care of itself.