Brush Up on Mortgage Products That Help Buyers Save

Cash-strapped clients need guidance on choosing a loan that meets their needs. Know the different types they’ll likely be interested in.

Real estate pros need to stop focusing on higher interest rates and return to the basics of business—and brokers need to help steer that ship, Peter West, broker-partner of Bishop West Real Estate in Venice, Fla., said Monday at the Idea Exchange Council for Brokers Forum during the 2023 REALTORS® Legislative Meetings in Washington, D.C. “We’re living in the past, and sure, if you’ve only sold real estate for two to four years, then yes, this feels like a catastrophe,” he said. “But that’s not the case.”

He noted that ultra-low interest rates during the Great Recession and the years that followed won’t be coming back—nor should they. The fact that low- and no-interest mortgages existed for so long distorted perceptions both on the consumer side and on the professional side, and that’s made it difficult for newer agents, West added.

The reality, however, is that most consumers are going with the flow, and brokers should take note, pass the word along and make sure their agents are educated on how to guide their clients in the right direction. That means getting familiar and more comfortable with mortgage products and incentives.

“Recently, on a house in Massachusetts, I had 20 offers. Nineteen of those offers were financed,” West said. Financing, he reiterated, is not going anywhere, and though cash offers might have reigned from 2020 through 2022, financing makes homeownership a reality for most buyers.

Inventory poses the biggest threat to the real estate business, West said. In Sarasota County, Fla., where West is based, the market only has two months of inventory. In Massachusetts, where he used to operate full-time, only 18 months of inventory is currently available.

Loan Products

Getting people into homes in a timely manner means understanding the various mortgage options and incentives available. Now is the time to refamiliarize agents with products like FHA, USDA and VA loans. It’s important to know that FHA loans aren’t just for first-time home buyers, USDA loans often have a zero-percent interest rate and VA loans work for anyone who has served in the military—whether they’re active duty, retired or discharged—so long as they weren’t AWOL or discharged dishonorably.

These loan products open up the market to a wider audience, letting more home buyers into the fold. They’ve also been the norm for decades, West said. So, brokers should make sure they and their agents understand and are willing to work with these products.

Adjustable-Rate Mortgages

These loans were thought to be a thing of the past when mortgage rates were at their lowest. Few borrowers were willing to risk their mortgage rate going up when rates had hit bottom to begin with. But that has since changed: In a market where rates are on the rise, adjustable-rate mortgages offer a solution for those who are experiencing barriers to entry in the housing market.

Mortgage Interest Deductions

This once-popular tax incentive is about to make a comeback—and so might your calculator, West says. There was a point in time when agents and brokers were regularly helping clients figure out what their mortgage interest deductions would amount to come tax time. No need to actually break out a calculator nowadays, though, since will help you calculate these figures with your client.

Interest Rate Buydowns

Temporarily lowering the interest rate through a buydown is another way to save clients money. So, brokers should be learning about this option and educating their agents. It’s important to remember that “America buys on payments,” West said, adding that real estate pros should be talking to their clients in terms of the monthly payments they’ll be making. Despite higher interest rates and home prices, if your clients can afford the monthly payment, they’re likely not too concerned about the interest rate, he said. For that reason, the real estate industry should stop demonizing interest rates and talk more about the various ways clients can manage a mortgage payment.

Source: REALTOR® Magazine