Helping Your Clients Understand the Mortgage Process

real estate agent explaining mortgage process to clients

Contributed by Roger Odoardi of Blue Water Mortgage.

As a real estate agent, you’ve probably worked with your fair share of clients who are looking to obtain a mortgage to finance their dream home. After all, as the first point of contact for any new buyer, your clients look to you for industry expertise — and that includes guidance on how to choose the right loan type from the right lender.

Get to Know Your Client

Before you provide that guidance, however, it is best to spend some time getting to know your clients and what their goals are. Take the time to talk to your clients about why they want to purchase a home, what type of property they’re looking for, their current financial situation and so on. Although no one can tell exactly what the future holds, it’s also helpful to ask your clients about how they envision their future. These conversations can provide valuable context for what loan type might be best for their situation.

As a framework for how to talk to clients, try asking the following questions:

Question #1: When you imagine your ideal home, where is it located?

Where your client wants to live could affect their eligibility for certain loan types. For example, if your client envisions their perfect home in a quiet, rural area, they might qualify for a USDA loan. Sponsored by the United States Department of Agriculture, the USDA loan program offers home buyers a low-interest, zero down payment mortgage in order to incentivize them to purchase property in rural and suburban areas with low population density. The location of your client’s ideal home could also affect how much they’re able to borrow, and what type of property they’re able to purchase.

Question #2: How long do you see yourself staying in this home?

The amount of time your client intends to stay in a home can affect the type of loan they choose. For example, if they plan on purchasing a home, renovating it and reselling it 10 or so years down the line, a 15-year mortgage might make more sense for them than a 30-year mortgage. Additionally, an adjustable-rate mortgage might be more practical than a fixed-rate mortgage because it would enable them to take advantage of lower interest rates within the first few years of owning a home. The difference between these two loans can be confusing, so we recommend checking out our blog on fixed-rate vs. adjustable-rate mortgages for clarification. Educating yourself on these and other loan types will help you foster trust with your clients.

Question #3: Do you plan on starting or growing your family in this home?

If the answer to this question is “Yes,” your client might want to consider making repairs or improvements or building an addition in order to make the space more comfortable for their growing family. It’s also important to note that adding more members to the family means more expenses, which could make it challenging for your client to keep up with their monthly mortgage payments. It’s important to point these things out to clients, not to discourage them from pursuing their goals, but rather to help them understand how their decisions can affect their finances.

These are just a few questions to ask to get started. Once you have a good sense of who your customer is and what they want, you’re better positioned to help them take the next step.

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Prepare Your Client to Meet With a Mortgage Broker

As a real estate agent, the best way to ensure that your client finds the home loan that’s right for their needs is to work with a licensed mortgage broker. A broker is an invaluable asset and can walk your client through every stage of the mortgage application process, from prequalification to closing. Before they sit down with a broker, though, your client will need to take care of the following items to get their finances in order:

Down Payment

Make sure your client has a clear idea of how much money they’re able to put down on their new home. A client’s down payment can affect everything from the interest rate on their loan to whether they need to pay private mortgage insurance. In order to protect your client’s best interests, it’s important you advise them that, although it might be tempting to put all of their money toward their down payment, they should set aside some of it to cover repairs, replacements and other costs that come with owning a home.

Monetary Gifts

Cash gifts given by family and friends are an excellent way for your clients to put money toward their down payment or home improvements, but there are legal stipulations around using them. Make sure your client clearly outlines any monetary gifts they intend to receive, so their mortgage broker can advise them on how to proceed. For additional insight into how monetary gifts work, take a look at this overview from LendingHome.

Existing Debt

Your client needs to be upfront about how much debt they’re carrying because this can affect how much money they’re able to borrow from lenders, or whether they’re eligible for a home loan in the first place. A mortgage broker can help your client calculate their debt-to-income (DTI) ratio but, in order to do so, all cards need to be on the table. According to Experian, the ideal DTI ratio depends on what type of loan your client chooses to apply for — for example, government-based loans accept a lower DTI ratio (31%–43%) than non-government-backed loans (35%–45%).

Credit Score

When it comes to applying for a mortgage, if your client has a credit score of 740 or higher, the world is their oyster. Lenders are more likely to look favorably upon borrowers with “top tier” credit scores, though there are loan programs that are more lenient to borrowers with a low credit score, a non-traditional credit history or no credit history at all. (Here’s more information on why good credit matters.) Advise your clients to do a “soft pull” of their credit score — as opposed to a “hard pull,” which can appear on their credit report as an inquiry and negatively affect their credit score — prior to meeting with a mortgage broker.

If your client struggles with credit, they’ll want to prioritize paying off existing debt and consider working with a credit repair company to improve their score; if, after this, they’re still struggling, they might want to consider taking on a co-signer for their loan.

Other items to prepare include:

  •     Their most recent pay stub
  •     W-2s from the past two years
  •     Tax returns from the past two years
  •     Mortgage statements for any other properties they own
  •     (If applicable) awards letters, pension income, Social Security income, retirement distributions and so on

It’s important that your client share absolutely everything with you and their broker — omitting information in the hope that it won’t be uncovered will only lead to issues further down the road. If your client has any concerns about their current credit or income situation, encourage them to be forthcoming because the only way to solve such problems is to get everything out in the open.

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Kickstart the Mortgage Application Process 

Now that they’re adequately prepared, it’s time for your client to sit down with a mortgage broker. Most brokerages gain business through referrals, either from real estate agents, family and friends, or past clients. Referring your client to a broker you’ve partnered with in the past and who you know has a proven track record can help set your client up for success.

When the time comes, your broker of choice should first make a discovery call or hold a discovery meeting, during which they’ll walk you and your client through the factors that go into loan qualification, as well as conduct a deep dive into your client’s income, asset and credit profiles. This call will give the broker a clear idea of whether they can assist your client. If they’re a good fit, the broker will proceed by helping your client prepare paperwork for mortgage prequalification, thus kickstarting the application process.

From there, it’s out of your hands. Although you’ll continue to be your client’s point person for all things real estate-related — touring homes, scheduling a home inspection, negotiating with the seller and so on — your client’s broker will take the lead on all things lender-related. That said, the ideal broker should work closely with you throughout the mortgage application process to ensure that you’re on the same page and that your client has all the latest information about their status.

Educating your client about the different loan types available to them and leading them to the right mortgage broker helps ensure a positive experience and increases the likelihood of return business. The key to a long and successful career as a real estate agent is to establish strong, long-lasting client relationships founded on trust and respect. Keeping your client’s best interests at heart is the first step.

Roger Odoardi is a co-founder, partner and licensed mortgage broker at Blue Water Mortgage CorporationAbout the Author: Roger Odoardi is a co-founder, partner and licensed mortgage broker at Blue Water Mortgage Corporation, an independent mortgage broker serving Massachusetts, New Hampshire, Maine, Connecticut and Florida with 20-plus years of experience in the financial services industry.

 

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