Mar. 10: Down payment option primer for real estate agents

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

What sells faster, lower priced or higher prices houses?


Housing Market Takes On Split Levels.  Lower-priced homes sell quickly while inventory on the higher end piles up. The less expensive the price, the smaller the growth in the number of homes on the market. the number of homes for sale priced below $100,000 fell 8.6% in January from a year earlier, while the number of homes priced above $1 million rose 15%, according to the National Association of Realtors.


The “need to know” about down payment options:


Real estate agents definitely have a full plate with every transaction. Although the job functionality of an agent and a lender are obviously different, there is of course some crossover. With so many different programs and lender options available, it is difficult to keep your mind wrapped around it all. In spite of that, there are a few things regarding down payment options, every realtor should know.


The most recent NAR Profile of Buyers and Sellers states, 40% of repeat buyers, and 66% of first-time home buyers, are putting less than 10% down. Understanding all of the low-down-payment mortgage options available to borrowers and leveraging this information to help them save money has the potential to positively impact your business growth.


2015 was technically a purchase market, although it may not have felt like one. Well, 2016 may feel much different. The MBA is forecasting a 66% purchase to 33% refinance market for 2016, which is certainly tremendous news for those who help people buy and sell homes.


Helping a seller means you are most likely helping a future buyer. According to Fannie Mae, home prices rose approximately 20% from Q1 2011 to Q4 2014. But despite this increase in value, many homeowners largely underestimate the amount of equity they have.

In fact, Fannie Mae and CoreLogic reported that at the end of 2014, 37% of homeowners perceived that they had more than 20% equity in their homes. In reality that number was probably closer to 69% of homeowners with “significant equity” in their homes. By the end of Q3 2015, the number of homeowners with significant equity in their homes grew to 74.3%.


This lack of knowledge has created an opportunity for us to educate homeowners and ultimately, drive more purchase business. Being able to guide them towards the appropriate low-down-payment options will help you get more deals done – and provide a valuable service to your sellers (and future buyers).


According to the NAR’s Home Survey, as of December 2015, 83% of renters wanted to own a home. The desire to own is even stronger in younger renters under the age of 34 — in fact, 94% of that demographic aspire to be homeowners one day. If today’s renters plan to fulfill the dream of owning a home, the goal of the real estate agent should be to help educate them on their low-down-payment options, especially since the down payment is often cited as the biggest hurdle to homeownership.


When a borrower decides to put less than 20% down on the purchase of a home (unless they qualify for a VA or USDA loan), they will likely need to use mortgage insurance. Admittedly there is a great deal of misinformation about mortgage insurance, which can lead to confusion for the majority of today’s buyers. Many people think that the Federal Housing Administration (FHA) provides a service that is markedly different than the service private mortgage insurers provide. The reality is both FHA and PMI provide the exact same service, but with some key differences.


A conventional loan with private mortgage insurance allows for slightly less money for a down payment (as little as 3% down), FHA requires a 3.5% down payment. A buyer with a higher credit score may stand to gain more with a conventional with PMI as most PMI premiums are based on credit scores. FHA charges an upfront premium along with the monthly mortgage insurance amount with that upfront premium most often financed into the loan, increasing the total amount borrowed. FHA does not base its premiums on credit score, so borrowers with lower credit scores often find FHA a lower-cost option. Be aware of the differences and exceptions in the MI cancelation policies per loan program as well, ask your lender regarding the specifics.

Start a conversation with the first-time home buyers who are seeking low-down-payment options for a home and let them know you understand the financing options that are available to them. This insight will propel you above others in the industry, and help your valued customers secure the best and most responsible financing options for their new homes.


One side note that is crucial to a successful transaction, either before the mortgage process starts or right after make sure you have a conversation with the buyer about what not to do. Many first time buyers have no idea that going out and buying a car or other financed items such as furniture or appliances for their brand new home after applying for a home mortgage could end up costing them their dream home.



If you have a spare 7-8 minutes on this winter day in mid-month, this is very interesting. “The Top 10 Craziest Moments Caught on Live TV”:





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