Unless all of your clients are cash buyers, mortgages are an integral part of any real estate agent’s business. Knowing some basics about mortgages will make you a better adviser to your clients and a more effective agent.
With that in mind, here’s a brief list of topics that real estate agents should understand in order to best help and advise their clients.
Although it is by no means necessary to become a mortgage expert, the following five mortgage insights will increase your value as a real estate professional.
The minimum down payment is not 20%
Most agents already know this, but a 20% down payment is the amount necessary for a buyer to avoid paying private mortgage insurance (referred to as PMI) on the loan. There are many conventional loan programs require as little as 5% down.
For first-time homebuyers, recent conventional loan programs introduced to the market allow buyers to get a loan with only 3% down. If you work primarily with first-time homebuyers, you should also be aware of down payment assistance programs offered by local governments and municipalities.
Even move-up buyers should get a mortgage pre-approval
Many of the first-time buyers I work with get pre-approved so they know how much they can afford to spend on their new home. But not all realtors encourage move-up buyers to seek pre-approval, and I think they should.
The situation may have changed from the time their clients originally took out a mortgage. Even if they’ve built up a lot of equity, it may not help the buyer if their income or credit is not aligned with the price of the property they hope to buy.
Oftentimes, people who have qualified for a mortgage at one time are surprised by new and current restrictions and underwriting standards. For this reason, real estate agents should encourage their clients to speak with a mortgage broker even if the client thinks they already know the ropes.
This can help avoid surprises or disappointment further down the line and save time for agents and their clients.
Shopping around for a mortgage will not hurt your credit score
Shopping around for a mortgage with multiple lenders is highly recommended, and even though credit inquiries do impact a borrower’s credit score, there is an exception when it comes to credit inquiries from mortgage lenders.
All such inquiries made in the 30-day period prior to scoring your credit are usually ignored. Furthermore, inquiries outside of that 30-day period that fall within a typical shopping period are counted as only one inquiry.
Condos have special underwriting requirements
If you’re working on a condo deal, it is in your and your client’s best interest to work closely with the mortgage loan officer to make sure the property meets the lender’s underwriting criteria. This is typically done through a condo questionnaire.
If you are the seller and state on your listing that the property can be conventionally financed, I highly recommend that you have the HOA documentation ready for the prospective buyer.
Among other things, they will be looking out for things such as pending litigation against the condo association, the percentage of units that are owner-occupied and whether any part of the building is used for commercial activity.
Many condo transactions are either seriously delayed or completely derailed by last-minute surprises that should have been discovered early in the process.
Advertised rates aren’t always available
Some realtors encourage their clients to shop around for rates at the last minute or promise mortgage interest rates to clients that they have seen online. This can often lead to frustration because not everyone will qualify for those advertised, ultra-low promo rates and there may be additional stipulations such as a quick closing or mortgage insurance.
That’s why I personally don’t promise rates until I have a completed application and all supporting documents. No two files are the same, so it’s best not to promise something over which we have no control.
There is a lot more to know when it comes to mortgages – and like I stated early, there’s no reason to become a mortgage guru! With that said, these five tips will help you look like a more that capable advisor in the eyes of your clients.
If you have other questions or would like to dive deeper into any of these topics, don’t hesitate to reach out to me!