Bill Gassett with RE/MAX Executive Realty in Hopkinton, Mass., covering the Metrowest market, is one of the top RE/MAX salespeople in New England. See all his real estate articles at www.maxrealestateexposure.com.
How Agents Can Help First-Time Home Buyers
Being an advocate, problem solver, and coach goes a long way for new buyers.
November 9, 2020
- A buyer who hasn’t owned a home in three years can qualify for government lending programs that help first-time home buyers.
- Tight inventories mean buyers must be able to make decisions quickly.
- Strong negotiation skills are among the most vital skills of a successful buyer’s agent.
Buying a home for the first time is undoubtedly a daunting prospect for many. First-timers are committing to a substantial financial contract that will affect their life for many years. It is also easy for a buyer to worry that they don’t know what’s typical during the process.
This is where you come in as a great agent—you can be a guiding force of knowledge to get them past any stumbling blocks that come up. Being a great buyer's agent is more than just carting clients around to see homes.
Let's take a look at some useful tips for first-time buyers that agents should keep in mind. A real estate professional who can navigate common first-timer mistakes can be invaluable.
The Benefits of Being a First-Time Buyer
Strange as it may seem, there are some advantages to not having bought a home before. The government offers programs to get people on the property ladder, and these include tax breaks, loans backed by the federal government, and programs to reduce down payment requirements.
Even clients who aren’t first-time buyers may qualify for government programs anyway. The U.S. Department of Housing and Urban Development says a person is considered a first-time buyer if they haven't owned a home for three years.
Single parents and those who owned a home with a partner previously are eligible, too. Displaced homemakers who owned with a partner or spouse, as well as people who own property that isn't permanent or doesn’t comply with codes, could also qualify.
Some of the more popular government financing programs are FHA loans and VA mortgages. As a real estate agent, you should have a complete understanding of who can qualify for these programs and the benefits they provide.
For example, an FHA loan has low down payment requirements, and a VA loan is one of the few loans available with no down payment. An agent’s job goes beyond just showing homes—you also should give buyers a full understanding of how to maximize their home purchase.
A great tip for first-time home buyers is to get potential clients to think about their long-term goals. Do they want to stop wasting money on rent and instead put it into a mortgage that will better serve them in the long run? Perhaps they see it as an important life goal or a way of establishing their independence. Maybe they want the tax benefits that owning a home offers.
The Buyer’s Finances
Before they begin to look for a home, buyers need to understand what they can afford. They should take stock of their savings, their monthly expenses, and their income to work out the amount of loan payments they could afford each month.
Buyers will need to get preapproved for a loan before sellers will take any offer they make seriously. Your job as an agent is to get them to understand this. It’s also essential to make them aware of the difference between being preapproved vs. prequalified.
When a buyer applies for preapproval, they might discover that they can't afford the mortgage they were expecting, and this will change the homes they look at.
There is also the issue of saving for a down payment and covering the other expenses at closing. A long time ago, a down payment of 20% of the purchase price was seen as a must, but fortunately, today, there are more options for first-time buyers.
Buyers who don't have money for a down payment will need to save first, unless they qualify for a 0% down payment from the VA loans program. As mentioned previously, government programs such as FHA loans, which require a down payment of only 3.5%, could help them buy a home faster.
If the buyers have a retirement plan such as an IRA, they can withdraw a lump sum of up to $10,000 without penalty. This should go a long way in helping with the down payment and closing costs. Agents who understand these basic concepts can help put buyers in a better position for becoming homeowners.
Improving Credit to Make Buying a Reality
A real estate agent may run into a buyer who would love to buy a home but just isn’t in a financial position to do so because of past credit issues. A knowledgeable agent can be a valuable resource for them. If the client doesn't have serious credit problems that would take a credit repair company to solve, a company such as Credit Karma may help.
Credit Karma gives consumers suggestions on improving their credit score, and the information is free. It could help your potential client be well on their way to owning a home. There are many excellent reasons to recommend Credit Karma to home buyers.
The Type of Home They Want
Once buyers understand how much they can afford, it’s easier to help them choose the type of home to buy. How essential is the location to the buyer? What sort of neighborhood would they like to live in, and how far will they want to commute for work?
Perhaps they want to find a home that needs some care and attention. Taking on a fixer-upper could save them a lot of money and be an excellent longer-term project, but there are downsides, too. The buyer might find that they have taken on more work than they'd imagined, causing them to spend more money and time on the home. These are the things an experienced agent will prepare a first-time buyer for.
Help With Home Buying
When a first-timer is looking for a home, the agent can make a big difference. It can be a chaotic process at times, with choices to make and deadlines to meet. The best agents will be able to answer buyers' questions and guide them through a process that can otherwise be complicated.
One of the hardest things both real estate agents and buyers have to deal with today is an extreme lack of inventory. For first-time buyers, this can be complicated and stressful. Buyers are put into the position of making immediate decisions, often finding themselves in a bidding war with other potential buyers.
A buyer's agent has to be on top of any new inventory that hits the market and immediately be in contact with their clients. Putting your clients in the best possible position to get the home they want without making an unwise decision becomes paramount.
Your job as an agent is still to make sure your buyer doesn’t make a big mistake. You still need to follow through on all of the necessary due diligence even though the buyer has been put in a position to make an immediate decision. This is about them, not about you.
The Purchasing Process Begins
Once a buyer has found a home they like, you can offer invaluable assistance in making an offer and in the negotiations that follow. Being not only a fiduciary but also a source of knowledge is crucial to their success.
Counseling on such thing as an earnest money deposit, along with appropriate contingencies, will be a key aspect of a successful transaction. Educating the client on what can go wrong is crucial, along with navigating them through any potential hurdles that crop up.
One of these potential hurdles could be the home inspection, which can be a stumbling block in many sales. Having someone in their corner to fight hard for their interests is something most buyers expect. Your job, however, will also be to keep them on track if they start to have unreasonable expectations. Negotiation is a vital function of any outstanding buyer’s agent.
Closing the Deal
If there aren't any severe problems uncovered in the inspection, or if the defects are dealt with, the buyer should be ready to head toward closing. Before getting there, however, there will be a few more steps to deal with, such as the appraisal. You might need to educate the buyer on the purpose of the appraisal. Keep in mind that while many things seem like second nature to you, they may not be to a first-time buyer.
Reviewing other financial information can be really helpful to first-time buyers as well. Things such as closing costs, title insurance, loan fees, etc., are familiar to most agents. For first-timers, it can seem like a foreign language.
Unfortunately, expenses don't end there, with moving costs, mortgage payments, property taxes, maintenance bills, and more as the process goes forward. Smart agents will continue to educate their clients right on through to the moment they are sitting at the closing table.
A lasting memory of a super-confident, knowledgeable agent can be compelling. It could mean quite a few referrals coming your way. The most important part of your role is doing your best to help a first-time buyer meet their goals.