3 ways to cure the first-time buyer blues

Making the leap from renter to homeowner is a transition worthy of all the angst that first-time buyers experience. Is this the right place? Can I get approved for a mortgage? Will I regret this decision? Am I getting a good deal? Can I afford this?

Although all buyers face the complexities of finding a home and getting a mortgage, first-time buyers enter the market with a healthy dose of worry and self-doubt.

Our recent Renter Survey, which polled Americans who are currently renting apartments or homes, showed that nearly 60 percent of respondents aspire to homeownership and that half intend to purchase a home within the next two years.

However, renters still face obstacles, and the biggest reported is saving for a down payment. With more than half of the renters surveyed indicating that rent increases averaged $288 over the past two years, the prospect of saving for a home, paying off debt and qualifying for a mortgage seems especially challenging.

So, what can agents do to help the tentative or worried first-time buyer feel more comfortable in today’s market? Consider the following tips when speaking with a renter:

1. Educate them on affordability programs  

Agents who are knowledgeable about today’s affordability programs can quell first-time buyers’ fears and help them achieve their dreams of homeownership.

Explaining the benefits and requirements of FHA loans, Fannie Mae loans and competitive bank portfolio products can greatly ease renters’ anxieties.

According to the survey, 53 percent of all renters looking to buy a home within the next two years have saved less than $25,000, and this is seen as a major barrier to purchasing a home.

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When buyers realize that a 20 percent down payment is not a hard-and-fast rule in the first-time homeowner landscape, a collective sigh of relief will be heard.

Agents should explain the benefits of today’s FHA and Fannie Mae programs that offer low down payment requirements, loan-to-value ratios and credit score thresholds compared to conventional loans.

Agents should also provide information on highly competitive first-time buyer products from banks that are creating new programs and more opportunities that allow this market to save.

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2. Do the math

Renters who want to enter the market — but choose not to — have a special form of frustration. Although the majority say that building equity and protecting themselves from rent increases are primary motivators to buy a home, they often feel financially uncertain and wait for the “right time” to make the change.

While on the sidelines, they might feel that purchasing a home is riskier than renting. This logic keeps renters paying high costs for rent, when paying for a mortgage might be much less or equal to their current rent.

An agent who does the math for this type of potential client can help them see the financial benefits of purchasing a home sooner rather than later.

Additionally, making first-time buyers aware that the tax benefits of homeownership include the ability to write off mortgage interest annually will help them recognize value beyond the here and now.

Another point to highlight is that renting can be more costly than owning a home, especially in areas where rising rents are the norm rather than the exception.

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As part of this discussion, the buyers’ assumptions that property taxes might disrupt their budget will need to be addressed. Agents might explain that while it’s true that taxes may rise, there also is a strong probability that rent will increase every year.

However, a mortgage payment won’t. For example, renters who pay $2,000 a month could get a $300,000 mortgage for 30 years at a 4 percent fixed interest rate. The monthly interest rate and principal payment would be $1,432.00.

Even with insurance at $120 a month, renters would still have room for $448 a month in taxes. If yearly taxes are $5,300 or less each year, the monthly payment for a home, which builds equity, and a rented home that does not, would be the same.

3. Talk about equity

Equity is understood by renters in a general sense and was cited by 45 percent of the TD Bank Renter Survey respondents as a reason to buy a home.

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But renters should be made aware that having a home and a mortgage delivers more than psychic relief from rent increases. It brings two distinct advantages: knowing that money spent accrues toward the home’s value and builds even more equity when a home’s value rises.

Current equity is wonderful, but future equity is great, too. A home’s equity offers advantages for homeowners who face college costs or other expenses.

Borrowing from equity through refinancing or getting a Home Equity Line of Credit (HELOC) provides opportunities to take a tax deduction on the interest and pay less in interest overall.

These substantial advantages of homeownership should be part of the discussion to first-time buyers, too.

As more millennials enter the first-time homebuyer market, finding homes that they can afford will be priorities for them and you.

Taking the time to understand their needs, financial concerns and the mortgage products in your region will create bonds of trust and will improve your brand position as a market expert.

While working with first-time buyers requires, by definition, more handholding and reassurance, it also can be one of the most rewarding parts of an agent’s job. Knowing that you provided service and expertise that led to the achievement of homeownership for first-time buyers can be a great feeling.

Ray Rodriguez is Vice President, Regional Mortgage Sales Manager for Metro NY at TD Bank. You can follow him on LinkedIn.

Email Ray Rodriguez.