What Realtors Should Tell Buyers About Mortgages
There’s no doubt that 2019 will offer a mix of a challenges and opportunities for prospective homebuyers–and their real estate agents. Mortgage rates remain low, so those interested in buying a home or refinancing should take the time to speak with a lending specialist about how to best proceed. A home equity loan may be a good option for those looking to buy a second home. Alternatively, those looking to buy for the first time can look into getting prequalified, and potentially preapproved. REAL Trends met with John Schleck, Centralized and Online Sales Executive at Bank of America, to discuss current rates, outlook for the future, the role of technology, and more.
Q: What is the best advice real estate professionals can give clients about navigating the 2019 housing market?
A: I would say, “Throw away old beliefs about buying a home.” Informing clients about the latest solutions, tools, and financing advice will give clients a fresh approach and confidence to affording a home. Clients may even be pleasantly surprised by the new reality about buying a home today. For instance:
- Many clients believe that they need a 20 percent down payment to buy a home. The truth is there are 3 percent down options for creditworthy buyers, which, for eligible buyers, can be complemented with down payment assistance programs. Clients can look into a low-down payment option like Bank of America’s Affordable Loan Solution loan where borrowers can put as little as 3 percent down with no private mortgage insurance required.
- Clients don’t need a perfect credit score to obtain a home loan. There are responsible mortgage options that enable creditworthy homebuyers, who meet certain income limits and other requirements, to become homeowners at an affordable entry point.
- Student loan debt does not have to prevent clients from purchasing a home. Those with student loans can look into graduated repayment plans, which will allow them to start low and then incrementally raise payments every two years to match their income.
Q: How can you respond to clients worried about housing market uncertainty?
A: People will continue to have home financing needs in every rate environment and housing market condition, and real estate pros and lending specialists can help them at every step, guiding them on the best solutions for their situation. By working with a lending specialist, you can help your clients can understand their overall financial picture and goals, giving them the tools they need to make long-term financial decisions.
Q: How should you introduce new home-buying technology to clients?
A: The recent strides in home-buying technology are just another example of consumers’ increasing comfort with digital tools, which they are using in every aspect of their lives – from managing finances to dating. In fact, the latest Bank of America Homebuyer Insights Report revealed that consumers are actually more comfortable applying for a mortgage digitally than dating online – more than half would apply or have already applied for a mortgage via mobile or online.
With a digital mortgage, like the Digital Mortgage Experience, prospective buyers can start the loan application process wherever they want on their own time from their own mobile device. They can even prequalify to get an estimate of how much they can borrow, or take it a step further and get preapproved for a loan before they start shopping for a home.
The report also found that 92 percent of first-time buyers agree that technology makes them feel more in control of their financial decisions. They see technology playing a role during every stage of homebuying. Respondents said, when buying their first home, technology will play a role in researching (98 percent), getting a mortgage (94 percent), as well as negotiating and buying (92 percent). Real estate professionals should feel very comfortable introducing technology to their clients to give them the blend of personal touch and technology that makes the experience more efficient and enjoyable.
Q: What should you tell clients who are looking for advice on finding the right loan?
A: Once you’ve engaged a lending pro to help your clients think through their goals and determine how much home their budget can handle, that same expert can explain to your clients the different mortgage types that may be right for their financial situation. A lending specialist can give professional advice on when a fixed-rate mortgage or adjustable-rate mortgage makes sense and can offer affordable loan products or identify housing programs offered by the city, county or state housing agency if appropriate. It’s also important to remind clients that getting preapproved for a mortgage will make them more attractive to sellers especially those in competitive housing markets. And, they can easily do this online or on their mobile device, for example with the Digital Mortgage Experience.
Q: Affordable housing: Are there loan products to help first-time homebuyers who do not have a 20 percent down payment?
A: Bank of America’s Affordable Loan Solution® mortgage in partnership with Self-Help Ventures Fund and Freddie Mac is a popular choice for creditworthy first-time homebuyers unable to make a larger down payment. It offers competitive rates with a down payment as low as 3 percent, no mortgage insurance required, and can be complemented with down payment assistance programs.
Additionally, Bank of America offers loans for specific groups of buyers such as medical residents and physicians. We often see these types of professionals carry significant student loan debt, and there are options, like Bank of America’s Doctor Loan, that can help. A doctor loan allows residents and licensed, practicing doctors significant advantages, including low down payment options and the ability to omit student loan debt from total debt calculations.
Now is also a good time to remind clients that mortgage rates have recently fallen to a nine-month low, which could mean a more affordable entry point to buying a home and good news for clients who were previously deterred by climbing interest rates.
Q: Are ARMs making a comeback?
A: ARMs usually get their spotlight when interest rates rise. The choice of fixed versus adjustable rate should be made after the borrower considers his or her entire financial picture. Here are some considerations for buyers thinking about an ARM:
- If you’re planning to move in the next few years (before the end of the introductory fixed-rate period) due to a job relocation, upsizing (new family member) or downsizing (children going to college), the term of your loan should be more of a priority than interest rate changes. Consider hybrid ARMs with terms of 5, 7 or 10 years.
- Determine if there will be an increase in income in the near future that can help cover the higher payments that might result from an increase in the interest rate. You need to be ready for the adjustable rate feature and assume that your payment will increase, although it’s possible it could decline too.
- If cash flow is a priority, for example if a parent is putting a child through college, homeowners might want to evaluate the benefit of the lower initial monthly payment of an ARM. A lower mortgage payment may help them better manage other monthly obligations.
Q: Are there any other emerging types of financing that are offering an alternative to conventional loans?
A: The Federal Housing Administration offers government mortgage loans that have features–such as low-down payment options and flexible credit and income guidelines–that may make them easier for first-time homebuyers to obtain. Lenders also offer other low down payment loan options, like Bank of America’s Affordable Loan Solution mortgage, which allows a down payment as low as 3 percent and no mortgage insurance required.