Purchasing a home for the first time can be an incredibly exciting experience. For first-time homebuyers, the process can also involve a lot of stress and uncertainty as they try to navigate the world of real estate. Often, these buyers don’t consider all expenses, fail to create a budget and make emotional purchasing decisions — all of which can put them in a tight spot financially.
As a real estate professional, it’s your responsibility to lead first-time homebuyers through an extensive and somewhat confusing process, helping them avoid rookie mistakes along the way. Here are a few ways to help them make smart decisions and avoid falling prey to some of the most common blunders.
1. Discuss the Down Payment
One of the biggest obstacles for first-time homebuyers is saving enough money to afford a down payment on a home. Of course, making a payment of 20% or more will result in lower interest rates, mortgage rates and insurance premiums. However, if making such a large payment requires homebuyers to use the majority of their life savings, doing so may not be a smart idea.
Homeownership and life, in general, has a way of surprising people with costs they never anticipated. If clients spend their savings to make a sizeable down payment, they risk being unable to afford unexpected expenses, which could put them in debt or cause financial strain. In this case, it would be smarter to opt for a smaller down payment.
2. Communicate Additional Expenses
The down payment isn’t the only cost first-time homebuyers should budget for, either. From income and property taxes to insurance, there are a number of other one-time and monthly costs they’ll have to pay on top of their mortgage. Yet some buyers aren’t fully aware of these additional expenditures while building their plans.
This ignorance can cause clients to purchase homes they think are within their budget but aren’t. Discuss expenses with your clients and communicate additional costs. Then, help them revise and refine the home search to find properties they can afford.
3. Find Cost-Effective Alternatives
If your client already had their heart set on a home they thought was in their budget, — only to find out it wasn’t — make it your personal goal to find a cheaper alternative. Look for homes that still check all their boxes but have less square footage or fewer closets.
Catering to their needs and wants in this way will help them realize they can still have a beautiful home without paying top dollar. Moreover, finding a suitable alternative will help your clients stick to their budget and avoid an emotional purchase they may have come to regret in the future.
4. Address the Location
In a frenzy of excitement, your clients’ attention will likely be on the home they’re touring at any given time. Most of their questions will center on landscaping, appliances and electrical wiring. However, the location of the house is just as important as the structure itself — after all, it’s one of the few things homeowners cannot change later.
Even if your clients don’t ask, consider it your responsibility to inform them of the surrounding area. Discussion points may include crime rates, nearby schools, the average neighborhood home price and nearby transportation options. Divulging this information will help buyers think carefully about purchasing a home instead of indulging their urge to act on impulse.
5. Explain Closing Procedures
Neglecting to factor closing costs into the budget is another common mistake among first-time homebuyers. After all the work you went through to find the perfect home for your client, the last thing you want them to do is to pull out because they can’t afford closing costs. Therefore, it’s best to explain the ins and outs of closing before you begin your search.
Generally, closing will cost 2% to 5% of the total purchasing price. Depending on that dollar amount and the home’s location, closing could cost homebuyers thousands of dollars. Speak with your client to determine whether they would rather continue their search elsewhere or roll closing costs into their monthly mortgage payment.
Honesty Is the Best Policy for First-Time Buyers
At the end of the day, honesty is always the best policy — especially when working with first-time homebuyers. If you have their best interests in mind and want to discourage them from making rookie mistakes, be honest and open about the homebuying process. In doing so, you’ll benefit them and yourself as they begin referring you to others.
Holly Welles is a real estate writer and copyeditor. Her work has been publish on Homes.com, Porch and other industry publications. Learn more about her work via her website, The Estate Update, or connect on LinkedIn for more information.