We are now entering a new era in the residential housing market for both the homebuyer and the mortgage professional. From tightening credit guidelines to regulatory restraints, the barrier to entry is greater than it has been in over a decade. What this tells us is that both sides of the homebuying equation must be better educated, prepared and committed to the process. As a mortgage professional entering 2014 with significant changes ahead, it is your duty to help new potential homebuyers and business partners plan for the mortgage application and approval process. This also includes helping them plan for a new large liability, primarily with a greater number of first-time homebuyers.
Many consumers don’t realize that a mortgage loan is a liability on a balance sheet. We know there are benefits with amortization, appreciation and tax incentives, but this doesn’t change how a balance sheet works. Even after paying your home off, the property tax results in a liability. Understanding the risks and rewards will help determine the right time to buy and better plan for an investment in real estate. It’s actually quite similar to a committed relationship. Interestingly enough, a mortgage counselor could be compared to a marriage counselor in many ways.
Here are a few stages homebuyers face similar to the marriage process:
No major commitments and no mortgage. Flexibility to do what they want and move when they want. Little maintenance or responsibilities on rental.
They’ve learned a little about some of the advantages in homeownership and are beginning to show interest. They look online or ask friends to begin considering their options and doing more research. They are toying with a few homes they’ve seen, but carefully weighing the pros and cons, and at times, can be a little too picky. Some have too much square footage and others not enough. They’ve informally interviewed a few mortgage professionals and realtors of interest.
Not sure if this even happens anymore in human relationships, but hang in there with me … formal pre-approval has been met and they are confident in their lender. Their loan officer provides them with their first pre-approval letter in which they are excited about and show off to others. They’ve started the initial process and established commitment with their loan officer and real estate agent.
The property has been found and they are ready to go! They got excited when their proposal was accepted by the sellers. They have shared the news with family and friends and the plans have already started on drapes and flooring before the inspection is even complete. It’s an exciting time and the closing date is set!
The day is here and the butterflies are moving. Docs have been delivered to closing and witnesses are attending the signing. The disclosures and commitments are re-explained and the signing of papers begins. The notary stamp confirms identities and the formalities are complete.
They’ve got the keys and it’s time to party! The house has been furnished and decorated and they’ve invited family and friends for the house warming party. Each day is exciting and so much to look forward to. The pride of homeownership is established and it feels great.
The most important part of the process that unfortunately lacks attention during the initial excitement phase. Commitment to a home and mortgage requires ongoing effort and selfless actions at times for the initial investment to grow. Maintenance and mortgage payments will be an ongoing responsibility that you cannot place on others and terms must be met for a happy and long-term relationship.
So what does this cheesy analogy mean? It means that your clients face a rollercoaster of emotions in today’s homebuying process and need someone there to lean on and help put things into perspective when necessary. You want to support a strong mortgage relationship with your clients and help them build wealth and avoid a divorce (foreclosure or financial strain) through proper budgeting. It also means that if you have a strong team supporting the process and making it as stress-free as possible, your clients will better understand and be more financially prepared for long-term success.
Andy W. Harris, CRMS is president and owner of Lake Oswego, Ore.-based Vantage Mortgage Group Inc. and 2010-2011 president of the Oregon Association of Mortgage Professionals. He may be reached by phone at (877) 496-0431, e-mail [email protected]
or visit AndyWHarris.com.