Should I buy or keep renting? This is a popular potential first-time homebuyer question. The rising cost of rent is leaving many renters wondering if it’s worth renewing their rental contract or if it’s time to make the jump into homeownership.
In March 2019, the cost of rent was 3.7% higher than the same time in 2018. That’s a high rate to swallow, especially in cities with booming populations.
In many markets across America, a month of rent is equal to or more than a monthly mortgage payment for the same amount of square footage. When renters make this realization, they start to wonder if homeownership could be a better route.
It’s likely that you’re talking to potential borrowers who are not sure if they’re ready to abandon their rental, as well as those who can’t wait to pay their last rent check. Regardless of where these potential borrowers are in their decision-making process, here are some questions they’re likely asking themselves and how you can help.
What’s More Affordable? Renting or Buying?
It’s easy to compare a monthly rent payment to a monthly mortgage payment, but that comparison doesn’t answer the first-time homebuyer question of which is actually more affordable.
When talking to a potential borrower, make sure they’re considering all the cash they’ll need upfront for diligence, inspections, and closing. A potential buyer should also consider the possible increase in utilities, insurance, and other factors like HOA dues they’ll need to pay as homeowners.
While all these factors seem to tip in favor of renting, remind potential borrowers that a good weight should be given to the fact that they’d build equity in a home – equity they can take out in the future.
To help answer this critical first-time homebuyer question, walk through the cost comparison with them in a spreadsheet or on paper. Doing so will help them determine if buying is truly a good option for them at this point.
What’s My Home Purchase Range?
The best and fastest way for a renter to know their realistic home purchase range is to work through the numbers with a mortgage lender. Explain to potential borrowers that going through pre-approval at the very beginning of the homebuying process gives them a good sense of their price range.
Getting pre-approved also gives real estate agents and sellers confidence that a loan will get approved and not hold up the sale of the home.
To spread the word about getting potential first-time homebuyers to get pre-approved – and pre-approve with you – you can post advertisements, social media posts, and blog posts about the importance of getting pre-approval for a loan. Let them know you can help them determine their price range and get them ready for the homebuying process.
You can also help potential borrowers that are pre-approved by putting them in touch with one of your real-estate agent referrals.
What Kind of Credit Score Do I Need?
Many renters think that they need to have sterling credit scores to be able to get a mortgage. Depending on the loan terms, the minimum credit score may vary. Conventional loan programs are available that have a minimum credit score of 620″
For potential borrowers who have lower credit scores, point them in the direction of courses that will help them improve their financial literacy and credit scores. Improving a credit score doesn’t happen overnight but getting potential borrowers on the right track will help them and increase the likelihood that you will still have a lead.
Along with credit score, another first-time homebuyer question that will likely come up during the mortgage application is “what’s debt-to-income ratio”. Be able to explain this ratio to borrowers in layman’s terms, so they know how to improve and maintain their DTI.
What Are My Mortgage Options?
Everyone knows about the 30-year fixed-rate mortgage, but what about all the other options that are available to borrowers like a 15-year fixed-rate or ARM loans?
When evaluating your borrowers’ options, make sure they understand the differences between loan types. Provide guidance on the type that would suit them best based on their financial goals and budget.
One other perception you’ll likely need to tackle is that many potential first-time homebuyers still believe that they need to have a 20% down payment to be able to purchase a home. There are many flexible lending structures available, including conventional loans with mortgage insurance that allow borrowers to put as little as 3% down on a home. In some cases, borrowers might be able to qualify for down payment assistance programs through their state or municipality’s HFA.
Answer Every First-Time Homebuyer Question
First-time homebuyers certainly have tons of questions, so make sure you’re able to answer them all. Being a reliable source of information for your borrowers will only increase your trust with them. You can find more examples of first-time homebuyer questions and other resources in our first-time homebuyer kit.