Real estate agents are typically the stars of the show when it comes to securing property for home buyers. After all, they’re responsible for the negotiations between buyer and seller, and sometimes they’re responsible for finding the property in the first place. Mortgage originators, however, are often the unsung heroes of the transaction, working behind the scenes to get buyers in the best position possible right from the beginning of the process.
The entry-level market is tight, and buyers in many regions are finding themselves stuck in an unexpected bidding war. Originators can help buyers stand out in a bidding situation and compete with other, more established buyers who might have larger down payments and/or conventional loan types.
Karma Herzfeld is a loan originator at Motto Mortgage Alliance, and says that a lot of her buyers are unaware that the situation could escalate to a bidding war at all.
“I would say the majority of my clients are not prepared for the process—the whole process. They are not educated very well about all the documentation that has to be done, all the income, the assets . . . they really don’t have any idea. And quite honestly, before I got into mortgage lending, I had no idea either,” Herzfeld said. “There’s a critical role for mortgage lenders, because we help them to understand.”
Motto Mortgage has come up with five things that the buyer can do in order to win the war with financing:
- Get prequalified
- Identify loan type and how it can affect an offer
- Understand seller concessions
- Be flexible and ready to compromise
- Create homebuying dream team
The first step in any of this is getting to the buyer first in order to communicate what they’re up against. Explain the mortgage process, what’s required of them in terms of documentation, how points, closing costs, and prepaids affect the bottom line, what seller concessions might be necessary, what negotiations might look like, and generally setting expectations based on the local market.
This is where having an established partnership with the real estate agent is an advantage; starting this conversation with the borrower and the realtor partner together ensures that everyone is on the same page before a property even enters the picture and emotions start to escalate. This makes the process move smoothly for everyone, and results in a more satisfied borrower—and realtor partner as well.
Too often, Herzfeld says, a partner will call her (often on a weekend) with a buyer who has found a home, and is only now requesting a prequalification. Originators are the ones who have to set expectations with realtor partners to refer buyers to a mortgage professional before looking at properties so they are ready to act quickly when they do find something that they want to purchase. Verifying income and understanding a loan situation takes time, and the only way that they’ll be able to move ahead of other buyers is if the originator has had the opportunity to examine the buyer’s situation beforehand.
Without this type of preparation, first-time buyers especially could be at a disadvantage when up against other, more seasoned buyers. This disadvantage could cause them to lose the property altogether, or at the very least make things more difficult and stressful than necessary.
“Getting ahead of the game with buyers is always best, and then they can look at their financial situation and say, ‘hey, can I do this or can I not,’ rather than just saying, ‘I think I want to buy a $150,000 house. I’ve got some savings. Let’s go.’”
There are also options that the buyer is probably unaware of, such as using lender credits if the seller isn’t willing to take care of closing costs and/or prepaids. Herzfeld doesn’t take this route often, but she says that it’s helpful to make buyers aware of such options, especially those people who don’t qualify for zero down programs, but who only have enough cash to pay their down payment. Awareness of other options—however unconventional—may require buyers to shift their mindset away from thinking that their ultimate goal is pay the lowest interest rate possible. Facilitating that shift, however, is about more than just education and opening their eyes to ways that they can purchase a property and reach their overall financial goals. It’s also about helping them edge out other buyers.
Putting the buyer in a position of strength at the start of the process ultimately makes the realtor’s job easier, and any originator who goes above and beyond to pave a smoother way for a commission check is their partner’s best friend.