This article is geared toward providing some valuable information to two different audiences: real estate agents and homebuyers. The content for this article came about from a lunch conversation I had recently with a former licensed real estate agent who is now working on the mortgage lending side of the business. This highly experienced and intelligent woman – we’ll call her Jane – made an interesting comment during our lunch. Jane said that she wished she had known more of the information that she’s learned working in the mortgage lending business back when she was an active real estate agent. Jane was certain that she would have been a much better real estate agent and closed more deals had she been more informed about the wide variety of mortgage options available, and had she understood how those options could provide a better fit for her buyers’ needs. Jane admitted that she was surprised at how little she knew back then and suspected that even today, many real estate agents lack a thorough understanding of the many mortgage options that can be leveraged to not only meet buyers’ needs but also to maximize their financial position going forward.

Pre-approval comes first

If you’re in the market to buy a new home, do yourself a favor and get pre-approved before you start driving around town and shopping. If you’re a real estate agent, do yourself and your clients a favor by encouraging them to get pre-approved before you start showing them potential homes. Today’s lending landscape is much different than it was just a few years ago. A steady paycheck and a decent credit score are no longer enough to qualify for a mortgage. There are many detailed pieces of information that a buyer must provide that can substantially impact the approval amount and sometimes may prevent approval of any amount. It’s important for the agent and the buyer to have a relatively accurate idea of what the buyer can afford. Unqualified assumptions about what a buyer can afford frequently end in disappointment for buyers that have glommed onto a house they’ve “fallen in love with” but ultimately can’t afford, and in frustration for agents who have wasted countless hours scheduling and showing unattainable homes. GET PRE-APPROVED FIRST and then proceed with a realistic idea of which homes are truly affordable.

30-year fixed is frequently NOT the best option

I’m not sure how this happened, but Americans have been brainwashed to believe that a 30-year fixed mortgage is the only good option. But in my opinion, it’s rarely the best option. Furthermore, there’s sort of a standard formula that has somehow emerged as the clear winner. The formula goes like this… 

A 30-year fixed mortgage +  the lowest rate possible + a 20% down payment to avoid mortgage insurance = the best option for every homebuyer.

People have different situations, different financial positions, different short and long-term goals. Mortgages are not a one-size-fits-all affair. Simply plugging numbers into this formula to calculate the amount of a 20 percent down payment is an extremely shortsighted and limiting way to go about exploring options.

What if a family doesn’t have 20 percent to put down; should they just give up on their dream of owning a home? No – there are other options. For example, some agents don’t know that there is a 5 percent down option that still requires no mortgage insurance. Sure, the loan amount and rate are a little higher, but if that family can afford a higher monthly payment, this option will not only enable them to buy a house, but will also expand the range of house they can afford. That may be important to a growing family.

This is just a single example of matching a mortgage to an individual’s needs, but the possibilities are practically limitless. 

Advice to real estate agents

I’m not saying that real estate agents should become lending experts – good agents already have plenty on their plates. But I am saying that it would be in a real estate agent’s best interest to view mortgage options as a suite of financial tools that can be leveraged to give buyers more and better options when shopping for home. The real estate agent drives the entire transaction. If an agent is only familiar with two or three of the most common lending options, then the guidance he or she can offer their clients is limited. The more an agent knows about the lending products available, the better he or she will be able to help buyers purchase the homes they want for less.

It’s unfortunate, but some real estate agents perceive mortgage professionals as an adversary – an obstacle to their sale. But I would argue that a quality, trustworthy mortgage professional could be one of a real estate agent’s greatest assets. If you’re a real estate agent, you should align yourself with a reputable mortgage professional and watch your sales and customer satisfaction levels grow rapidly.

Advice to homebuyers

Finding a good real estate agent is important, but finding a real estate agent that understands the importance of selecting the right lending option may be the most important and financially impactful decision you can make during your home buying process. Ultimately the home you choose will be greatly affected by the lending process and the mortgage product you choose. Make sure your agent has a close working relationship with a trusted mortgage professional. It’s important to know that there’s a difference between a registered mortgage professional and a certified mortgage professional. A certified mortgage professional is licensed and must regularly pass continuous education courses to maintain credentialing. A certified mortgage professional has a proven commitment for staying informed of the latest trends and regulations that affect the mortgage industry. As a buyer, if you choose a solid real estate agent-mortgage professional combination, you’re more likely to have an optimal home buying experience.

Patrick Stoy has 15 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.