First-time buyers make up 42% of all potential buyers nationwide. What with an inventory drop of 17.1% in least expensive homes y/y in January 2018 and an inventory drop of 9.7% in all homes nationwide, your first time buying clients need your particular attention in order for them to navigate this ever increasingly competitive market.
NerdWallet compiled a list of mistakes most first time buyers make when they decide to become homeowners. Help your first time buyers avoid them.
- Shopping for a home before shopping for a mortgage It’s understandable. Shopping for a home is much more fun than talking finances with lenders. But suggest to your first times to get pre-qualified and even pre-approved for a home loan before they begin their home search in earnest. Most agents these days, in fact, don’t even show potential buyers any homes without that pre-qualified status. Neal Khoorchand, broker-owner of Century 21 Professional Realty in Queens tells his potential buyers, “If you’re qualified for a $500,000 house, we’re not going to show you one for $600,000…it’d be a waste of time.”
- Not looking for first-time buyer loan programs. Suggest that your first-timers ask a lender about low-down payment loan programs for first-time buyers. Some VA programs and US Dept. of Agriculture programs don’t require any down payments. FHA loans have down payment requirements for as low as 3.5% of the purchase price. Some conventional lenders have down payment requirements as low as 3%.
- Not hiring a buyer’s agent. A buyer’s agent is duty-bound to work for the buyer’s best interests just as a seller’s agent is duty-bound to work for the seller’s best interests. A first-time buyer needs someone in their corner and only their corner.
- Using up all their savings. Suggest to your first-time buyers that they save enough for their down payment, closing costs, moving expenses, and unexpected/emergency expenses. John Pataky, executive vice president of EverBank’s consumer division, said “…if they (first-time buyers) don’t have enough in back reserves or emergency funds, they’ll find themselves in the hole very quickly.”
- Ignoring the home’s drawbacks. No one can disregard the downsides of a home forever. Khoorchand suggests that first-time buyers visit 10, 15, 20 houses before they make an offer on one. He also suggests that they write down the pros and cons of each house and that they pay particular attention to the cons.
- Being indecisive. It’s one thing to ignore a home’s drawbacks; it’s another to be indecisive. Khoorchand said, “You and 10 other people will be interested in the same property.”
- Overpaying for a house. Federal Home Finance Agency economists found that first time buyers overpay by an average of 0.79% or nearly $2,200/house. Give your first time buyers a competitive market analysis that shows comparable prices for houses that sold in the same neighborhood.
- Skipping home inspections. Certified home inspectors discover hidden (and often expensive) damage that first-time buyers don’t see.
- Underestimating the costs of ownership. Becoming a homeowner costs more than a mortgage payment. Make sure your first-times know they’ll be paying for utilities, cable, insurance, property taxes and perhaps home owner association fees.
- Miscalculating repair/renovation costs. Suggest your first-timers gather several, not one, estimates for repairs and/or renovations. The, “double the estimates for a more realistic view of costs,” said James Ramos, owner of RE/Max Bay to Bay in Tampa.
- Applying for additional credit before the home sales transaction is finalized. Tell your first-timers that lenders check credit scores and debt-to-income ratios multiple times during the loan process. Suggest to your first-timers to select their furnishings and appliances prior to the transaction closing and pay for the furnishings and appliances after the transaction closing.
- Missing a first mortgage payment. Suggest to your first-timers that they ask the lender at the real estate closing when the first mortgage payment is due and how they will receive notice of that due payment.