Every week, we ask a real estate professional for their Short List, a collection of tips and recommendations on an essential topic in real estate. This week, we talked with Alex Haried, a real estate agent with Redfin, for his steps to help your clients understand their budget.
Have you ever had a client fall in love with a home, only for them to realize it’s not actually affordable? No one likes realizing their “dream home” is out of reach, so it’s important you keep your clients’ heads out of the clouds, and help them understand exactly what they can afford before they start searching.
Here are seven steps to keep your buyers on a realistic path.
7. Get Your Client Pre-Approved – If you haven’t already, have your client get pre-approved for a loan. While this is a first step, it can be a valuable one. It gives an upper, hard-and-fast boundary for your client’s budget. But, as you know, just because a lender will extend a client a certain amount of money, that doesn’t mean that’s the amount your client should be spending.
6. Review the Debt and Housing Ratios – If your clients aren’t familiar with the concepts of the debt-to-income ratio and the housing-to-income ratio, explain that these are two factors lenders look at – and that they are serious considerations when making a home purchase.
5. Review Your Client’s Goals With Them – Why are they buying? Is this a first purchase, an upgrade or a second home? Do they view the purchase as an investment that they expect to appreciate, as a savings vehicle (through their equity) or simply as a place to live? Do they think diversifying their assets is important, or are they willing to put all their money into a home? Understanding a client’s financial goals will help you find listings that meet their needs.
4. Break It Into Monthly Payments – Most people think in terms of how much money they’ll have to shell out each month – not in terms of hundreds of thousands of dollars. Sit down and talk through how much your client is planning to spend on housing each month, including insurance, association dues and taxes, as well as the monthly mortgage payments. Then, build that number out to show how much home is affordable under different financing plans.
3. How Will Your Client Finance Their Purchase? Some clients aren’t aware of the many financing options available to them. Do they have money saved for a 20 percent down payment, or were they planning on putting less down? Or are they paying all cash? Would they consider an ARM mortgage, if they know they’ll sell before the adjustable rate kicks in? Or were they planning on taking out a 15-year mortgage to take advantage of the exceedingly favorable interest rates? Each decision affects how much home a client can afford, as well as how competitive an offer will be in a multiple-offer situation.
2. Coach Your Clients to Consider Upcoming Changes – Ask your clients how long they anticipate being in a home and what changes are coming over the horizon. If your clients share that they are planning to expand their family, or that they are considering purchasing a home with enough space to accommodate an elderly relative, or that they’re planning to transfer cities for work in a few years, have a frank discussion about what that means for their finances and how the size and cost of their home plays into it.
1. Look Out For Your Clients’ Best Interests – Your job is to make sure your clients are informed. When it comes to talking finances, you’re a resource, in conjunction with your client’s lender and financial advisor. You know the real estate market intimately. Especially for first-time buyers, it’s easy for them to get swept up in the process and overspend or make decisions they might end up regretting. Be a rational, objective eye. If you see a client veering towards something they’ll regret, step in. After all, happy, repeat clients are the ones who look back years after their purchase and are still glad they made the decision they did.
Alex Haried is a real estate agent with Redfin. Alex works with clients searching in the Logan Square, West Town, River North and South Loop neighborhoods. A lifelong Chicagoland resident, Haried grew up in the western suburbs, attended Northwestern and now lives in University Village. Through it all, Haried has remained in love with Chicago, and is always excited to share his enthusiasm and real estate knowledge with his clients.