Even for those who have little to no financial hurdles to buying a home, the purchase process can be complicated, with unexpected challenges arising along the way. But for would-be buyers in a more challenging financial situation, these hurdles can all but quash their dream of homeownership.
Clients who have large student debt, are going through a divorce or bankruptcy, have medical issues, are experiencing job loss, are beginning a new job, or are looking to relocate—all of these life events can present unique challenges and lead to buyer hesitancy.
Here, we look at some of the financial hurdles some buyers may face, and how you can help them achieve their homeownership goals by building relationships with the right partners—within the industry and beyond.
As real estate professionals know, a client’s credit score plays the biggest role in determining what types of loans they will be eligible for. While your role is not to be their financial advisor, there are some tips you may be able to share. Consider that the first thing they need to do is get their finances in order. They should get copies of their credit reports and have any errors corrected. If they have a lot of credit card debt, work to pay down the balances and lower their debt-to-income ratio. A lender may approve them for a bigger loan than they can realistically handle, so they should take a hard look at their budget and write down all of their monthly expenses, and look at their monthly income after taxes and figure out how much they can afford for a mortgage without stretching themselves too thin.
Coming Up With a Down Payment
One of the top hurdles for new buyers is coming up with the down payment. While some first-time buyers are able to score down payment rates of as little as 3.5 to 5 percent, most are expected to sock away at least 20 percent, which can be difficult, especially in places where the cost of living is high. Buyers may need several years in those cases to save the amount. To increase the pace, financial experts advise setting up an automatic savings program, cutting expenses or borrowing from relatives or a retirement account. A flexible housing option, like the Lease Purchase Program offered by Home Partners of America, can be an ideal option for buyers with financial hurdles or those moving to a new area they may not want to fully commit to.
Obtaining a Minimum FICO® Score
A FICO® Score is the credit score that most lenders use to determine your credit risk. To come up with its scores, FICO® looks at how often consumers are paying their bills on time, what percentage of available credit they’re using, the average age of their lines of credit, their total number of accounts, derogatory marks in their credit report and other related factors. Scores range between 300 and 850—the higher the score, the lower the risk. Your clients can get their score online through several free or paid apps, but a lender usually provides the most accurate score by pulling the numbers from the big three reporting agencies and using the middle number from each. Knowing their credit score is a good way for both you and your clients to start out the buying process on the same page in terms of what home price range might be available to them.
Considering Cost of Living
If your clients are thinking about moving to a new area, one of the biggest considerations should be understanding what additional costs they may have in their new location. Cities come with different price tags. For example, housing prices in the downtown of a large city are going to be far more than in a small town. Make sure they know what they’ll be spending before they commit. Even grocery prices tend to change. The worst thing that could happen is they move and find out they can’t afford their new city. Financial planning makes all the difference, and it can help avoid future panic or crises.
While real estate experts agree the national inventory shortage is improving, it’s still cause for concern in many markets. An insufficient supply of low- to mid-priced homes in metro markets with strong job growth continues to drive up prices and push prospective buyers out of the market. With low inventory keeping prices elevated, the financially-challenged buyer’s options are even more limited. Creative housing options, like Home Partners of America’s Lease Purchase Program, can be an ideal option in inventory-challenged markets.
Build Relationships to Build Bridges for Your Clients
By building relationships with the right partners within the industry, and even outside real estate-related service providers, you can go a long way toward helping your financially-challenged buyers in achieving their homeownership goals. Here are some partnerships to consider to help your clients connect with services they may need and appreciate:
Lenders and Attorneys
Most real estate professionals refer clients to a select group of lenders, and they choose those companies based on the ease of doing business with them, their reputations, and the strength of those relationships.
First-time buyers may need more hand-holding through the process, or may have more questions than more experienced buyers, and your intimate knowledge of your lender network will be invaluable to new clients looking to find the right mortgage partner for their needs.
In the same spirit, if your buyer is going through a financially challenging life event, such as a divorce or bankruptcy, having a recommended attorney for them can bridge needed services and shore up their trust in you as a valued partner for their real estate needs. Be sure to take time to get to know those you recommend so you’re confident in your referrals.
Human Resource Departments
For buyers who may be moving to a new area, you may be able to provide some valuable connections for them by connecting with human resource departments hiring from outside the area, such as hospitals hiring doctors and nurses or students going through residency, and colleges and universities hiring professors or seeking grad students.
Agents should build these HR relationships in order to refer not only relocating buyers with financial obstacles, but also renters or buyers who are cautious about committing to a mortgage because they don’t know how long they will be in the area, but still want the benefits of living in a single-family home, or because they would like to try out their new neighborhood.
If you have a client looking to rent a single-family home, you may also want to consider offering a flexible housing option like the Lease Purchase Program offered by Home Partners of America. Home Partners works with qualified renters and their agents to identify a home for sale they’re interested in, purchases the home, and then leases it to the resident with a right to purchase in the future.
This unique program provides renters the opportunity to get into a great quality home in a good neighborhood that they might not otherwise have been able to. They have the opportunity to rent the home in one-year increments for up to five years in most markets, and they have full rent certainty during that time. They are also given the exclusive right to buy the home back from Home Partners at a preset price if they would like to do so. The program is a win for all involved, as agents receive the benefit of turning a rental lead into a full sales commission.
Beth McGuire is RISMedia’s online managing editor. Email her your real estate news ideas at email@example.com.