According to the National Association of Realtors’ 2014 Profile of Home Buyers and Sellers, first-time buyers accounted for only 33 percent of all sales, the lowest mark in this century. The issue is how to overcome first-time-buyer reluctance and persuade them to buy now.

According to Freddie Mac (“Perceptions of Renting and Home Ownership,” Multifamily Research Perspectives, Dec. 8, 2014), 47 percent of the 25- to 34-year-old group and 58 percent of the 35- to 44-year-old group plan on purchasing a home in the next three years.

Although down payments, student loans and limited inventory continue to hamper first-time-buyer opportunities, many first-timers hesitate because they don’t understand the cost of continuing to rent.

If you’re ready to overcome the I-think-we-should-just-continue-to-rent objection, here are three must-have strategies in presenting numbers to transform your buyers renters into homeowners:

1. They will get way more home for their dollar.

To close your reluctant first-time buyers, begin by explaining the relationship between interest rates and affordability. As interest rates increase, affordability decreases. If you’re good with numbers, explain exactly what is happening in terms of the exact location and price range where your buyers are looking.

If numbers are not your strength, use today’s interest rate coupled with either local or national median prices. For example, in January 2000, interest rates were at 8 percent and the median price was slightly above $140,000. Today, rates are hovering at 4 percent and the national median price is slightly above $200,000.

According to John Burns Consulting, a homebuyer earning $60,000 with a 36 percent front-end debt-to-income ratio could afford a 30-year fixed-rate mortgage of $245,310 in 2000. That same buyer today (assuming a 4 percent interest rate rather than an 8 percent rate) can afford a home for $377,030. That’s a big jump in terms of quality and size.

The longer the buyer waits, however, the more likely it is that the home will cost more.

The reason is twofold: First, demand is still outpacing supply in most areas. Second, as prices increase, affordability decreases. Buying now combines the advantages of low interest rates and moderate affordability.

2. There is a cost to waiting.

First-time buyers are often concerned that prices might go back down again as they did in the last downturn. To handle this objection, ask how much they believe prices could go down. Assuming they say 10 percent. On a $200,000 purchase, that would be $20,000.

Although the Fed is signaling that it won’t raise rates, some experts have predicted that 30-year fixed-rate mortgages could shoot up to 6 percent this year. Even if this doesn’t occur in 2015, it could easily happen in 2016 or 2017. Consequently, the next step to persuade reluctant first-time buyers is to show them the cost of waiting.

To illustrate how this works, assume that your buyer is purchasing a home with a $200,000 mortgage. The payment at 4 percent interest would be $955 per month. A 1 percent interest rate increase to 5 percent would result in a payment of $1,074 per month for a total increase of $1,428 per year.

Now assume that rates do tick up to 6 percent. That second increase would result in a 25 percent increase in payments from $955 to $1,199.

Where you really see the effect of these increases is when the borrower holds the property for the full 30 years. On a $200,000, 30-year fixed-rate mortgage that increases from 4-5 percent, the borrower who obtains the 5 percent loan would pay an additional $42,772 in extra interest as opposed the borrower who paid 4 percent. That’s 21.4 percent of the total loan amount — that’s enough to fund a chunk of retirement or the kids’ college education.

If the rates increase from 4-6 percent, the amount jumps to a whopping $87,937 or almost 44 percent of the total loan amount in extra interest.

To do this calculation for your buyers, use one of the online mortgage amortization payment calculators. Plug in the current interest rates with their current loan amount.

Next, repeat the process with an interest rate that is 1 percent higher and a second rate that is 2 percent higher. The amortization schedule will print out the total interest paid over the life of each loan. Simply subtract the current interest amount from the two higher amounts.

3. The most important reason of all.

The Federal Reserve Survey of Consumer Finances has consistently reported that homeownership results in an increase in household net worth. The reason is that homeowners create wealth by paying off their mortgages and building equity.

What most people fail to realize is how great the resulting difference is. As of 2013, the latest available information from the Federal Reserve, the average household that rents has a net worth of $5,500. In contrast, the average homeowner has a net worth of $195,500 — that’s 36 times the amount of those who rent. Over the past 15 years, these numbers have ranged from 31 times to as high as 46 times the net worth of renters.

So the next time your qualified first-time buyers want to “continue to rent,” pull out these three must-have tools — chances are they will be writing an offer soon.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Discover why leading Realtor associations and companies have chosen Bernice’s new and experienced real estate sales training for their agents at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.

Email Bernice Ross.

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