Working with First-Time Homebuyers: The New Reality! by Karen Deis

by 07 May 2009
It?s going on year 3! That?s how long it?s been since the housing market downturn started. It?s created a significant demand for home ownership among first time homebuyers. But, things have changed! Forget about what you?ve known about working with first time homebuyers. There is a new reality?not only on how they view homeownership, but getting them approved and how to market them. In 2008, 41% of all home purchases where made by first time homebuyers. In the first quarter of 2009, that number was 53% (according to the NAR). First the good news: It?s a First-Timer Nirvana!  First-Time Home buyer tax credits  Lower housing prices  Even lower interest rates  Increased number of FHA lenders  $10 Billion USDA Funds Allocated If you are still using the ?rent-versus-own? comparison models?throw them away?they just don?t work anymore. FTHB now consider their home a ?primary place to live? as opposed to an ?investment?. What?s more, out of that 53% mentioned above, 18% plan to take advantage of the tax credit. But, nearly half, or 48% said they had NEVER HEARD OF THE TAX CREDIT. The balance has said that they don?t qualify because they earn too much money. But wait! Those who said that they earn too much money?they were totally unaware of the ?partial tax credit cap of $20,000?. The formula is a little more complicated, but a couple earning $9,000 more than the maximum income amount can still claim a tax credit of $4,400. Here?s an example of a ?partial tax credit? if a married couple earns $159,000 AGI (or $9000 more than the income cap): Married Couple AGI = $159,000 Subtract Max AGI ($150,000) = 9,000 Divide $9,000 by $20,000 = .45 Subtract .45 from 1.00 = .55 Multiply .55 x $8,000 (Max Credit) = $ 4,400 Hey, don?t ask how the government came up with this formula, but I suggest you use this as an example when explaining it to your first-time buyers who exceed the maximum AGI. (Side note: Even at $19,000 over the AGI, a couple could still get a $400 tax credit.) Use this same formula for a single homebuyer?but always, always, refer them to a tax professional. This is a great opportunity for you, your real estate partners and tax preparers to get the word out?with ads and seminars. The Bad News?  Underwriting rules have tighten up  Minimum credit scores have increased  Lack of money for down payment  Fear of loss of job  Home values may still be decreasing in your area Because of the job loss and housing pricing (still going down?) fears, it is now taking an average of 10 months (up from 8 months) for FTHB to buy a home. In regard to ?job loss? stats, over 25% of laid off workers were between the ages of 20-34?or your FTHB age group. Marketing to Apartment Complexes Just Got Trickier According to the National Association of Realtors, almost 70% of first time buyers have rented prior to buying a home. Marketing to apartment complexes is where you will find them. But, there are changes in apartment marketing too. In some areas of the county, rents are decreasing because of increased vacancy. In other areas, rents have increased. Apartment managers are facing more competition--depending upon the amount of foreclosures! With Fannie and Freddie allowing foreclosed homes to be rented (instead of sitting vacant) and home sellers, (who cannot sell their current residence) offering rent-purchase options, it?s now competing with apartment complexes. On the other side of the coin, the building of new apartment complexes is at a standstill. Almost 1/3 of all complexes have been built prior to 1970. They are old, out of date, with no money available for updating the units. Apartment owners have also tightened their ?credit standards? and are rejecting almost 20% of rental applications (used to be 8%). When choosing apartment complexes to market to, you may want to target older complexes. To check for vacancy, you may want to drive around the complex during the evening hours. Check to see how many lights are on?how many cars in the parking lots?how much ?stuff? is out on the balconies. (The apartment managers are not going to tell you either). For more tips on how to market to apartment complexes, check out A Database Is Mandatory You know that not every first-time homebuyer, who walks thru your door, is going to qualify. One of my niches was marketing to apartment complexes and at any given time, had an average of 800 contacts in my database, who either needed guidance in getting qualified or where in some ?stage? of the home buying process. This is where a living-and-breathing database is critical. You will need a system to follow up with potential first-timers whose only cure to buying a home is ?time??time to increase their credit scores, save for a down payment, or find another job. Each of your contacts has a unique set of ?qualifying? circumstances. Creating a ?game plan? with your FTHB is you annuity (for future business). The mistake most loan officers make is creating a game plan without the buy in from the client. Let?s say you have pre-qualified a client and they need to increase their credit score by 40 points AND save money for a down payment. ?Hoping and praying? that they will work on their credit score and systematically save money is not a plan. Send a letter or an email where you and the client jointly create a game plan, with specific dates, and then tag each date (in your database) to follow up. This is the way to weed out the serious buyers from those who hear your advice, yet do nothing. is a good resource tool if you need help in setting up an active database. One last thought?. I recently read an ad from a real estate agent about the $8000 tax credit. Half of the info was dead wrong! If you don?t get the word out thru seminars, apartment complex marketing, articles and interviews with the media, someone else will! You are missing one half of the purchase market and refi?s aren?t going to last forever! Karen Deis, the publisher of and President of Foundation Marketing, Inc., specializes in training real estate agents and loan originators on consumer-direct marketing strategies. She owned a real estate company, mortgage company and appraisal firm for 10 years and was a business partner with one of the largest builders in her area.


Should CFPB have more supervision over credit agencies?