The Road from Renting to Homeownership: Helping the First-Time Homebuyer
In most cases, they know what they’re looking for and they know the steps to the buying process.
But what happens when you get a home shopper that is coming directly from renting their residence? Questions abound.
Since homeownership is a major life goal and accomplishment for us all (and the biggest expense most of us will take on), can we really blame them? So it’s important you know how to guide them through this exciting, yet challenging stage in life, no matter how many questions they throw at you.
Find Out Their Lifestyle
The first thing you need to help your client decide is if homeownership really suits their lifestyle.
“Most people who buy are people who are looking to anchor and be part of a community and raise a family in that neighborhood,” says Jerry Koller, a broker with International Home Realty in Irvine, Calif. “If a client wants to buy, the Realtor should discuss their lifestyle and how they like to live.”
For instance, a buyer who travels a lot and eats out more often than cooks at home would be better off not searching for a home on the top end of their budget. By the same token, a buyer who has a permanent, high-paying job they’re happy with may be well-suited for a home in a better part of town with a larger price tag.
“If it’s someone who could be moving in another year or two, it’s usually not a good time to get into such a secure loan lock-in investment,” adds Lauren Haw, CEO and broker of record for the online Canadian real estate database Zoocasa. “But you could work with that client instead on an income property, something to rent out because that is a better investment.”
It’s important you ask questions — or at least get the clients to ask themselves: Do your foresee marriage in the future? What about children? Is it important that your home be close to a city center or the country?
The answers to these questions can help narrow down the playing field for available homes.
Don’t Let Them Disqualify Themselves
One common mistake many home shoppers make is to disqualify themselves from being able to purchase a home, whether it be financially or mentally, due to misconceptions. It is your job as the agent to make sure that doesn’t happen.
Many first-time buyers have avoided homeownership for so long because they don’t believe they can afford it or come up with the money for the down payment. In reality, there are a plethora of down payment assistance programs and other resources to make the dream of homeownership come true for renters.
“Check with the housing authority for the state you live in,” says Scott Layson, owner of the Layson Group of Keller Williams in Nashville, Tenn. “Many states have loan programs for low-income families that offer low or no down payment on the home. There are also loan programs that offer 100 perfect financing, like the VA loan for veterans.”
As the agent, it pays to do your research so you can relay information like this, whether it be contacting your local government housing authority, checking in with the real estate associations in your area or working with your area lenders.
Another way first-time homebuyers can disqualify themselves is by getting into a consumer debt situation.
“One piece people don’t realize is if you buy a new car, sometimes within a year of looking at a home, a car payment can throw off your debt servicing ratio,” says Haw. “So prior to looking at government-based programs, you have to make sure you’re guiding your clients from the first time you come into contact with them to not buy a new car or switch jobs.”
Explain the Buying Process
Perhaps the most important area to get educated in is how the costs of buying a new home will differ from renting. After all, most renters are used to three easy payments (if not just one fixed cost): rent, utilities and Internet/TV. With homeownership, it’s not quite that simple.
“In homeownership, there can be some surprises,” says Haw. “Homebuyers can get a fixed mortgage, so that their monthly interest costs are going to be the same and fixed home insurance. But any given year there may be some home maintenance required.”
Which is why she suggests having clients set up emergency funds when they’re planning for a purchase, as well as for the down payment and moving costs.
“Other things people aren’t aware of is that the home insurance piece is usually required in order to get a mortgage,” adds Haw. “It’s something that clients will often leave to the last minute, so you need to be upfront in helping them get home insurance so that they can get a mortgage.”
It’s also important to leave room in the budgeting for location. In fact, Layson says this is the No. 1 factor in determining a home’s value.
“When buying a home, you must realize that home shoppers will be paying for a point on the map,” advises Koller. “Everything you do will revolve around this point — work, schools, restaurants, shopping.”
While renters might just be looking for ease of convenience to where they’re working or going to school, homeowners will need to consider much more, as this location is much more permanent and of much greater personal value. It is your goal as an agent to know your area and give the best guidance.
“Look at where the city and state are making infrastructure investments,” suggests Haw. “If you’re a Realtor and you understand the zoning in the city, then you can give people the best long-term real estate advice.”
In closing, Haw leaves one last piece of advice: be patient with them as you walk through it all, as the homebuying process is much slower than the week or so it takes to choose a rental property.
“The rental purchase is quick; you usually have the need and it happens within a month,” she says. “The buying process is slower; you want to start with a lender, understand the shopping risks, explore different neighborhoods and check the schools. You’re investigating both lifestyle and investment.”