AgentMortgage

Is it time to go back to mortgage basics?

As traditional homebuyers return, it might be time to revisit mortgage fundamentals

For the past several years, the real estate market has been working through significant distressed inventory, and investors and cash buyers have comprised a large portion of purchases.

Recent market indicators seem to be pointing toward more traditional buyers returning to the market. It might be time for real estate agents to go back to the basics and prepare for more mortgage-based transactions in the future.

Market signs

According to the National Association of Realtors, pending home sales increased for the third straight month this past March and were at their highest level since June 2013. Sales to investors were down from 19 percent of all purchases in first-quarter 2014 to just 15 percent this past first quarter.

In the same time frame, all-cash sales also decreased from 33 percent in 2014 to 26 percent this year. According to NAR Chief Economist Lawrence Yun, these numbers signal the return of more traditional buyers and housing activity driven by long-term homeowners.

In addition to these positive signs, recent numbers from the American Enterprise Institute’s (AEI) International Center on Housing Risk seem to show that first-time homebuyers might be not be as “missing in action” as previously thought.

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According to the center’s First-Time Buyer Mortgage Share Index, this past March, first-time buyers represented 56.6 percent of owner-occupied purchase mortgages with a government guarantee (including Fannie Mae, Freddie Mac and Federal Housing Administration loans).

These numbers vary significantly from NAR’s most recent survey, which indicated first-time buyers’ market share was at a historically low 33 percent.

AEI’s positive outlook on first-time purchases, combined with NAR’s reported increase in traditional homebuyers, might indicate that the real estate market will look significantly different this year.

As real estate agents prepare for the future, it might be time to go back to the basics after years of dealing with investors, cash buyers and distressed properties. As consumers gear up for the summer season, real estate agents should arm themselves with knowledge of today’s mortgage market.

Know the lending fundamentals

Just like in the real estate arena, the mortgage market fluctuates. Since the housing crisis, access to credit often has been constrained to the “ideal buyer” — one with a high credit score and a significant down payment.

However, as more traditional buyers return, credit is beginning to loosen, and nonbank lenders are stepping up to meet demand.

Today’s lenders offer a variety of mortgage products to accommodate a broad range of potential homeowners, including those with FICO credit scores below 600 and borrowers who need jumbo loans for high-value properties.

For example, some lenders will accept a 10 percent down payment with credit scores as low as 550 for an FHA loan while others won’t accept scores below 600.

Make sure clients have been prequalified for a mortgage that works for the properties they are looking at, including funds to cover any possible bidding wars if a list price is low or the market is particularly competitive. By knowing what will and what won’t work with a lender’s guidelines, you’ll save your clients’ time — and your own.

By building relationships with a variety of lenders that offer a broad range of products, real estate agents can ensure they cast a wide net for their clients. This range will help agents not only build their business, but also help more clients get the home they desire.

Real estate agents should also stay on top of the latest developments in the mortgage market, as this might open opportunities for potential buyers to get more house for their money — or just to qualify for a mortgage at all.

For example, this past January, FHA lowered its mortgage insurance premiums significantly, which means more borrowers could qualify for an FHA-guaranteed loan and potentially could qualify for larger loan amounts, as well.

If you need to brush up on your knowledge, many lenders offer online or in-person seminars to go over the fundamentals of mortgage lending, including credit scores, program guidelines and overlays.

As the market heats up and becomes more competitive, look for lenders that create programs to help meet demand, from closing cost concessions to new loan products.

Be sure to also go over your lenders’ timeline estimates for the entire mortgage process, from preapproval to closing. With tightened inventory, a lender who offers streamlined processes can be critical to getting to closing on time.

As more traditional homebuyers return to the market, getting the right mortgage vehicle in place will become increasingly important. Real estate agents who are familiar with lending guidelines will be able to spot potential issues before they develop, save their clients’ time and money, and help ensure a smooth closing.

By reviewing the basics of mortgage lending and arming themselves with the details of their lenders’ products, real estate agents can position themselves for success in today’s housing market.

Ray Brousseau serves as executive vice president for Carrington Mortgage Services Mortgage Lending Division. Please follow Carrington on Twitter or LinkedIn.

Email Ray Brousseau.