The journey to home ownership is filled with fears and anxiety. To help navigate the process, first-time homebuyers look to industry professionals who live and breathe the housing and mortgage financing market for guidance.
Homebuyers in the thinking-about-it stage, whom I’ll call pre-first-time homebuyers, often rely on their family and online research for advice. But they also recognize the value of professional advice. Nearly half (45 per cent) of pre-first-time homebuyers look to real estate agents for referrals of services, including mortgage specialists, lawyers and home inspectors, according to the 22nd Annual RBC Home Ownership Poll.
At RBC, one of the first questions that we get when a client applies for a mortgage is, “What is my rate?” Buying a home is likely the biggest purchase we make in our lifetime, and it is much more than a regular mortgage payment.
There is lifestyle to consider and the prospective homebuyer’s plans now and in the future. A low interest rate is rightly desirable but what are the tradeoffs and equally important, the other factors to consider? Just as first-time homebuyers may be able to overlook an unfinished basement in favour of a spa bathroom, what are the mortgage features that can, or cannot be overlooked?
Here are some tips for real estate professionals working with first-time homebuyers as they navigate the home buying process:
- Educate your clients about getting preapproved for a mortgage. This way they lock in a rate guarantee – at RBC, a fixed-rate term is protected against increases for 120 days. A preapproved mortgage is a serious sign that the homebuyer is ready to buy and this status may also represent negotiating power with a seller. It will also provide some price parameters so the first-time home buyers can shop with confidence.
- Fixed or variable? Length of term? One in three pre-first-time homebuyers don’t know what kind of mortgage they will get. Connect your client to a mortgage specialist, which will help give the homebuyer a clear view of their mortgage options, make for a happier shopping experience and reduce anxiety about affordability. Refer your client to the wealth of online resources available, including mortgage payment calculators and advice videos.
- A great rate and a great mortgage are not the same thing. Too many homebuyers focus on securing the lowest rate for their mortgage at the expense of money-saving mortgage features. The real secret to saving money over the course of a mortgage is not just the interest rate, but using strategies to pay down the mortgage faster to save on interest costs. A flexible mortgage with prepayment options and accelerated payments helps shorten the amortization, meaning your client can be mortgage-free sooner and save thousands of dollars in interest over the life of their mortgage.
- A mortgage is but one part of the home-buying equation. Explain the total cost of home ownership and how that impacts affordability. First-time buyers may not know about one-time closing costs, or remember to budget for ongoing maintenance. In fact, 31 per cent say carrying costs of a home is their main reason for waiting to get into the market. Look at income projection for the next few years. Will the homebuyer’s earning potential go up or down? That will certainly affect affordability. Talk to them about their lifestyle and future plans (like growing their family) and urge the homebuyers to develop a financial plan and budget that fits with their overall goals.
The bottom line is that a constant dialogue with your clients will ease the anxiety during the complex home buying process. Everyone’s housing preferences and mortgage needs are unique so it’s up to us to listen well and provide the best advice we can for homebuyers every step of the way.
Trisha Fineza Forbes is senior manager, home equity financing at RBC, specializing in the first-time homebuyer segment. RBC is celebrating Realtor Appreciation Week from April 13-17. Follow @RBC_Canada and Twitter using the hashtag #RBCThxRealtors.
