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As real estate agents, we are well-accustomed to clients who are actively searching for their first. Quite often, a client will contact us after already scouring the internet for dream homes. For many first-time homebuyers, it seems only logical that the process of buying a home starts here. We know: It doesn’t.
While lining up a mortgage and saving a slush fund might not be the most exciting to-do items on a homebuying checklist, they are essential. It’s important not only to the closing of the deal (it’s hard to buy a home if you can’t get a mortgage), but also to assure that the client is left with a positive experience from beginning to end.
If you have a client who decided to make the giant leap from renter to homeowner and you’re in this industry to build a business based on repeat clients and referrals, offer these five tips to your prospective clients to help them prepare for their first homebuying experience.
1. Crush your credit
In the rush to begin a home search, it’s easy to forget to start at square one: credit score. However, pulling a credit report from TransUnion or Equifax should be the very first task in your client’s home search process.
This step is particularly critical if your client has past debts that may need resolving. Explain to your client that a lender will most certainly check their credit score and that ignoring any red flag won’t make it go away; worse, it can increase the best mortgage rate offered by lenders.
For those certain that their credit score is excellent, remind them that mistakes can turn up on any credit report. These can be resolved, but the process can take months. In the meantime, your client will be blocked from getting the best mortgage rates.
2. Hold off on significant purchases
Just before purchasing a home, and while paying off debt, suggest to your client that they should hold off on making any significant purchases or acquiring any new debt. This includes setting up a new store credit or new credit card (unless it’s part of a debt repayment strategy).
Lenders will examine credit scores as well as debt-to-income ratios (known as debt ratios). Any new debt will increase this ratio and make it harder for them to qualify for a mortgage (or get the best rates). Plus, adding new debt or access to debt can cause unnecessary fluctuations in credit history. This is a red flag for most lenders. Tell them that lenders want to see stable, squeaky clean spending habits.
3. Seek mortgage pre-approval from several lenders
Many first-time homebuyers take the easiest route available and apply for a mortgage with their usual neighborhood bank. Remind them that while it’s wise to maintain a great relationship with a local banker, don’t assume that this bank will offer them the best mortgage rates.
Check rates with multiple lenders and tell them to read the terms — as they’ll want to find a mortgage with a good rate and terms that are favorable to their lifestyle.
Once they have obtained their mortgage pre-approval letter, they can shop confidently knowing precisely the amount of dollars they can spend on their home each month.
4. Avoid closing cost calamity
Quite often you will provide exceptional service to your client, only to have a publicly negative review. Although this hurts, there are steps you can take to avoid this.
Always confirming throughout the process that you’ve heard and understood your client’s needs and concerns is integral, but so is putting yourself in your client’s shoes. For them, you are their real estate coach.
The person tasked with assessing the field, examining the other team and calling the plays. As a result, many clients assume that agents should also alert them to all potential obstacles and warn them of all unexpected circumstances — including financial ones.
While this isn’t supposed to be part of our job, a client doesn’t see it that way. This doesn’t mean you need to take on the responsibility, but you can take on the task of reminding or alerting your client of these financial obligations, such as closing costs.
While many buyers are vaguely aware that these fees exist, first-time homebuyers are taken aback when they total up the sum of these costs.
To help them prepare, simply provide them with a list of costs they may incur, such as:
- Land transfer tax
- Legal fees
- Title insurance
- Homeowners insurance
- HOA fees
- Property taxes
- Utility hook-ups
- Other potential fees
These costs vary from state to state (with larger cities sometimes adding in their own municipal fees). All you have to do is remind them to do their homework about these costs before finalizing a home purchase deal.
5. Expect extra move-in costs
Here’s a cost that homebuyers — first-time or experienced — forget to consider more often than you’d think. To help, give your client a list of moving tips along with ways to save money (such as how to buy furniture for your new home without breaking the budget).
Quite often, just reminding your buyer client that additional costs may come with a new home purchase is enough to help them plan and budget for these expenses and — more importantly — not feel overwhelmed or shocked by costs they didn’t consider.
The bottom line
As a Realtor, we are helping people make the single-largest purchase of their lifetimes (if the experience goes well, hopefully, more than once). To be of maximum service to your first-time homebuying clients, remember that buying that home starts long before the first viewing of an open house and long after closing day when keys are transferred.
To keep in their good books and ensure long-term, repeat business, make sure you think like a coach and prepare your client for any eventuality. Do this, and the positive reviews will pour in.
Romana King is an award-winning personal finance writer, a real estate expert and speaker. Romana is the current Director of Content for Zolo Realty, one of Canada’s leading online real estate websites.