Purchasing a home is a significant financial undertaking for anyone. Whether your client is a first time buyer or an experienced owner they look to professionals, like you and me, to help them through the process.

As a Mortgage Broker, one of the first questions I often hear is “what is your best rate?”

Well that is not a straight forward question. What type of property are you looking for? Are you going to live in it, or will it be a rental property? How much is your down payment? How is your credit? Are you employed, self-employed or on contract? When are you planning to buy? Not to mention, what term makes the most sense for you, and what features do you need in your mortgage, and / or what restrictions are you willing to accept?

All of these questions and more need to be asked before we can determine what kind of rate the client, and the property, will qualify for.

There is lifestyle to consider and the prospective homebuyer’s plans now and in the future. A low interest rate is rightly desirable but what are the trade-offs? Just as homebuyers may be able to overlook an unfinished basement in favour of a mountain view, what are the mortgage features that can, or cannot be overlooked?

Here are some tips for Realtors to help their clients navigate the mortgage financing process:

  1. A mortgage is but one part of the home-buying equation. Explain the total cost of home ownership and how that impacts affordability. First-time buyers may not know about one-time closing costs, or remember to budget for ongoing maintenance. In fact, 31 per cent say carrying costs of a home is their main reason for waiting to get into the market. Look at income projection for the next few years. Will the homebuyer’s earning potential go up or down? That will certainly affect affordability. Talk to them about their lifestyle and future plans (like growing their family) and urge the homebuyers to develop a financial plan and budget that fits with their overall goals. Remember, what they qualify for and what they can “afford” are typically not the same thing.
  2. Educate your clients about getting pre-approved for a mortgage. While more and more Realtors won’t work with clients until they have a pre-approval in hand, there are still many that will and that can be a time consuming mistake. There are also a lot of home buyers who do not know what a pre-approval is and isn’t. For most a pre-approval is nothing more than a rate hold, based on speculation with no application or supporting documents reviewed. While, a pre-approval is a serious sign that the homebuyer is ready to buy and should provide some price parameters so the home buyers can shop with confidence. Not all pre-approvals are created equal. While all pre-approvals will lock in a rate for a specified period, typically 90 – 120 days. Most lenders review nothing but a credit report, and some don’t even do that, when they complete a pre-approval. Why? Underwriting is a time consuming process and less than 10% of pre-approvals submitted, actually end up in a closed deal. This is where an experienced Mortgage Broker can help. The lender may not underwrite the file, but I do. I will gather all of the same documents required for a full approval, and I will underwrite the file. I can then advise clients of what we confidently expect to get approved for, and what, if any, risks or issues they may face when they do find a property, and ultimately put in an offer.
  3. Fixed or variable? Length of term? One in three homebuyers doesn’t know what kind of mortgage they will get. Connect your client to a mortgage ratesMortgage Broker who will help give the homebuyer a clear view of their mortgage options. It’ll make for a happier shopping experience and reduce anxiety about affordability. Mortgage Brokers are about education, and that is the largest difference between us and the banks. Just as you spend a significant amount of time with your client during a buyer’s presentation, I spend a significant amount of time talking with the clients when we first meet, walking them through the process, and their mortgage options.
  4. A great rate and a great mortgage are not always the same thing. Too many homebuyers, and sometimes even Realtors and Real Estate Lawyers focus solely on the lowest rate for a mortgage, at the expense of money-saving mortgage features, or costly penalties. The real secret to saving money over the course of a mortgage is not just the interest rate, but using strategies to pay down the mortgage faster to save on interest costs, or avoiding costly penalties as not all lenders calculate penalties in the same way. Over 70% of homeowners will break their mortgage contract at the three year mark – depending on their lender, home owners could significantly eat away at their equity with exorbitant penalties. Flexible mortgages with prepayment options and accelerated payments helps shorten the amortization, meaning your client can be mortgage-free sooner and save thousands of dollars in interest over the life of their mortgage.

Remember, constant dialogue with your clients will ease the anxiety during the complex home buying process. Everyone’s housing preferences and mortgage needs are unique so it’s up to us to listen well and provide the best advice we can for homebuyers every step of the way.

Educate your clients that it’s not all about rate, just as you educate them in a listing presentation that hiring you is about more than your fees.

Co-written with Martin Breeze, Mortgage Broker, TMG The Mortgage Group