Green Haven Capital's Kevin Oto on why the maximum approval is the wrong place to start
A pre-approval letter that says "You qualify for $700,000" is exciting. But for most of the first-time buyers I work with, it doesn’t answer anything. A year ago, my first job was confirming whether someone could get a mortgage. Today, working in in Elk Grove, Roseville and Folsom, the bigger job is showing them where the real opportunities are, where they will have to compete and how to structure a purchase they will still feel good about long after closing.
That shift starts with education, because no single Sacramento housing market exists. Two homes a few miles apart in the same suburb can draw completely different levels of demand. An updated single-family home on a good lot in a sought-after school district can still attract multiple offers quickly when the seller prices it right. On the other hand, three-minutes away, an overpriced home that needs work and has sat for weeks gives the buyer real leverage. I don't want a first-time buyer lowballing every listing because they heard the market slowed, and I don't want them overpaying for a house nobody else is chasing; in my market, constants are seldom. I've written before about how Sacramento demand has split into two markets at once. For first-time buyers, that split augments how I go about the pre-approval itself.
Three numbers matter more than the maximum approval
I spend far more time now separating what a buyer can qualify for from what they should actually spend – the two numbers rarely match. If a purchase at the top of someone's approval leaves them tense every month or drains most of their savings, I’ve hardly done them a favor.
With every first-time buyer, I start with three questions: What can you qualify for? What payment are you comfortable with? And how much money do you want left after closing? I build the strategy around those answers, not around an underwriting system’s ceiling. Buying a home shouldn't force anyone to stop saving, investing, traveling or maintaining an emergency fund just because the system says they technically qualify for it.
Builder incentives carry a resale risk buyers rarely price in
New construction plays a much bigger role across Greater Sacramento than it once did, and builders can get extremely aggressive. Nationally, 66 percent of builders reported using sales incentives in September, more than in any month since December, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index. Discounted rates and closing-cost assistance can make a new-home payment look very attractive, and sometimes new construction really is the better opportunity.
But I want first-time buyers to see the other side of that decision. If there's a reasonable chance they'll need to move within the next few years, they should think carefully before buying in a community where the builder is still actively selling.
I've watched homeowners try to resell a relatively new home while the builder competes down the street: They cannot match the incentives that drew them into the community in the first place. If a buyer can get a brand-new home from the builder with a reduced rate and help with closing costs, why would that buyer pay the same price for a one- or two-year-old resale without those benefits? In some cases, I've seen sellers cut their price significantly or take a loss just to compete.
None of this means buyers should avoid new construction. It means how long a buyer expects to own the home needs to be part of the decision, not an afterthought. Someone who plans to stay for many years can largely set the short-term resale risk aside. Someone who expects a job change, a growing family or a relocation within a couple of years needs to understand that risk before a builder's financing promotion makes the choice for them.
"How long a buyer expects to own the home needs to be part of the decision, not an afterthought."
The pre-approval should be a strategy session
This is the biggest change in how I work with first-time buyers. A good pre-approval should show them what different purchase prices mean for their monthly payment, how much cash they should keep in reserve, where a motivated seller might offer a credit and how a builder incentive compares with the resale home they actually prefer.
Seller credits deserve special attention right now. When a home has sat and the seller gets motivated, we can sometimes negotiate money toward the buyer's closing costs or interest rate. Then we decide together whether that money works harder reducing cash to close, buying down the rate or protecting the buyer's savings. That's why I want the mortgage conversation running alongside the real estate negotiation, with the Realtor and the loan officer structuring the whole transaction in the buyer's favor instead of reacting to the asking price (as I’ve shared before, the lowest mortgage rate isn't always the best deal for buyers).
The goal isn't to convince every buyer to purchase. It's to educate them well enough that when the right home appears, they understand why it makes sense and feel confident enough to act. First-time buyers today need an advisor who can help them read the pocked market, recognize rare opportunities, and structure a purchase that still makes sense well after closing day.
