Let’s talk about first time home buyers and why they need you to help them find their home and how you can help them with closing costs. Without costing you a cent.
According to the 35th edition of National Association of Realtors 2016 Profile of Home Buyers and Sellers, it looks to me like Realtors need to learn more about cash flow than financing. From the Profile:
- First-time buyers who financed their home typically financed 96 percent of their home compared to repeat buyers at 84 percent.
- For 61 percent of buyers, the source of the down payment came from their savings.
- Forty percent of buyers saved for their downpayment for six months or less.
- The most difficult step in the home buying process was saving for a downpayment, as cited by 13 percent of respondents.
- Of buyers who said saving for a downpayment was difficult, 49 percent of buyers reported that student loans made saving for a downpayment difficult.
- Forty percent cited credit card debt, and 34 percent cited car loans as also making saving for a downpayment difficult.
- Buyers continue to see purchasing a home as a good financial investment. Eighty-two percent reported they view a home purchase as a good investment.
What no one knows is how many deals fell apart when they learned what the closing costs would be. This is known in the business as ‘a rough spot.’ Where always is heard a discouraging word, especially when there is no cash for which to pay.
You will not hear what I am about to recommend coming from lenders or mortgage brokers. But it is in fact in play, especially in markets where production builders are active.
So what do you do with this prospect who has save $15000 for a five percent downpayment to purchase a $300,000 home.? You qualify them for a mortgage payment. But then there is that matter of cash needed for closing costs. Surprise! Surprise!
Since no one likes surprises, there is an ever so intense desire to back away from the deal. Better known via text messages as “we decided to wait.”
This leaves you with a bitter taste in your wallet and the wrong assumption that you should quit dealing with first time home shoppers ‘because they are so hard to qualify.”
Your home shoppers continue to rent, facing rising ones at that, and you lost thousands in commission because you could not help them qualify for the downpayment PLUS closing costs. Right?
Well, here’s the tip of the week.
Stay with me on this, because we are talking fulfilling their dreams and filling your pocket with a big commission check.
Action item: Find a homebuilder in your market building homes close to the home shoppers’ price point, who is offering a ‘cash contribution to closing costs” as one of his incentives. It could be $1000 to $10,000 or more.
The “cash contribution to closing costs” is the amount the builder will contribute to closing costs if they purchase a specific floor plan, inventory home, build on a certain lot, or a combination of these.
Expect a time limit on these offers. Its what builder’s do. And it works to every one’s benefits.
They may be offering a decorating allowance, a lot waiver, or some other incentive. These will not help with closing costs.
Let’s say your buyer needs another $5,000 to cover mortgage costs. Show them a new home where the builder is paying a contribution to closing costs, and let the builder pay it. Actually, the builder’s ‘preferred’ lender pays it. This is a lender who the builder uses for all kinds of financing, not just mortgages. These builders need a lender who completely understands their business, who has read the legal documents, approved the community the builder is building in, etc.
If this is such a good idea why would your mortgage lender not suggest you contact the builder in the first place? Because there is about a 99 percent chance the builder’s preferred lender is not the lender the home shopper used to qualify for the mortgage.
Part of what the ‘preferred’ lender wants in addition to the construction loan, is the “end’ loan, or the mortgage. Lenders who are not ‘preferred’ simply cannot compete with the ‘cash contribution to mortgage’ incentives provided by the ‘preferred’ lender.
But the good news is you are now truly helping first time buyers who need all the help they can get. If you don’t help who will?
You don’t have to understand financing, but you better understand cash flow and how it slowly it flows for many first time home buyers.
Written by David Fletcher, NHCB for www.RealtyTimes.com Copyright © 2016 Realty Times All Rights Reserved.