Building Better Budgets

Down Payment

Saving for a down payment can be daunting, especially for first-time buyers. How much do they really need to put down?

First and foremost, help your borrowers bust the 20% down myth. Especially with today’s home price appreciation, 20% down on even the most affordable home is still a large sum.

Private mortgage insurance (PMI) and down payment assistance exist to help buyers get into homes without the need for a 20% down payment.

Many times, borrowers can put down as little as 3% and still be able to purchase a home, but unfortunately many of your first-time buyers won’t know that. Make sure you’re clear about the different down payment options available to borrowers, and to take it one step further, do your homework to understand which options will be right for them.

Even with down payment assistance, not everyone will be ready to buy immediately. There is a lot more that goes into budgeting for homeownership than just the loan itself. Be clear with your borrowers about the additional costs of buying and owning a home.

If they are not ready to buy right now, that’s okay! Continue to be an educational resource for them so they can prepare to buy with you in the future. The CFPB has a great resource you can share with borrowers about how much they truly need to budget for.

Closing Costs

Of course, another cost of buying a home comes on closing day. Rocket Mortgage estimates that borrowers should be prepared to pay anywhere from 3-6% of their purchase price in closing costs.

For your first-time buyers, this is another area where they’ll need some education on what to expect and how to budget.

Appraisal fees are usually around $500 for a single-family home, according to NAR. Rocket Mortgage says title search can cost between $75–200 (or higher) and title insurance can range from 0.5–1% of the purchase price. These fees and costs can add up quickly, especially when borrowers don’t see them coming.

As you’re preparing your borrowers for closing, remind them not to take on extra debt during this time, as it can drastically change how things go at the closing table. Even if the loan has an affordable payment, any additional debt still changes their bottom line.

The same goes for job changes. Be clear that a new job means changes to the loan application — and subsequently to their closing costs if there’s a closing delay or a higher debt-to-income ratio. It’s critical that you make sure your borrowers know to communicate any changes before close so that their new income can be reviewed and documented.

Home Maintenance

The costs don’t stop once the borrower gets their keys, either. There are many expenses that people don’t think about but need to be prepared to spend money on in the weeks and months after buying a home, especially for those buying their very first property.

New homeowners will need tools, lawn care and maybe even appliances or furniture — and homeowners will need some savings for repairs when something related to the home inevitably breaks or needs replacement. Getting utilities turned on comes with startup and connection fees, as well. If the home is in a community with an HOA, that is another fee the owner must be prepared for.

Taxes and insurance may go up over time, also, adding to the costs that owners need to be prepared for. While this is not a requirement for all loan programs, many of these costs are essential, so encourage your buyers to have some cash savings in reserve built up so they can address these additional costs.

Going above and beyond to help set your borrowers up for success can help set you apart from other lenders. Helping them get into a home is your job, but helping them stay in a home in a way that’s financially sustainable shows the value you place on the relationship.

Anyone who owns a home knows that the costs don’t end when you close, they are only just beginning. It’s critical that you help your borrowers understand how they can better budget to be truly ready for homeownership. Guiding them through the process even when they can’t yet be customers positions you to be their go-to resource when it’s finally time to buy.

As Dave Ramsey said, “Personal finance is 20% head knowledge. It’s 80% behavior!” So, let’s take action and help folks change their behavior and build wealth through home ownership.