Have you ever heard the saying that when dealing with a serious or complex medical condition you should always have a friend or family member accompany you to the visit and see the doctor with you? The reason for this is to increase your likelihood of asking questions when you are confused. The confidence afforded by another person on your side helps create a much more open dialog about the situation. This is why real estate agents are so important for first-time homebuyers and it is one of the most important aspects of what real estate agents do.
The Mortgage Challenge infographic from the California Association of REALTORs shows that a significant portion of first-time homebuyers feel uninformed when it comes to lending. What can you and your real estate agent do to help prevent this?
Real Estate Agents and Financing
How do real estate agents assist you in the lending process? What is your real estate agent’s role in helping you obtain financing?
- To “hook you up” with secret savings that only they know about???
- To make sure you understand what’s going on, what your options are, and what the consequences of those options are???
When I am assisting a client who is purchasing a home with financing (a loan), it IS NOT my job to find them the best “deal” on a loan. It IS my job to make sure they understand the options they have at their disposal and what the different effects of those choices are. In doing so, we (myself, my client, and the lender) are striving to find the loan that best suits your unique situation.
Always ask questions
To return to the medical analogy, your agent should be “in the room” with you and your lender, figuratively speaking. If you are a first-time buyer and are completely new to lending you should be asking your lender (or prospective lenders) lots of questions. Your agent should be able to help you understand the situation and to interact with the lender when you aren’t getting the information or attention you need to feel informed and confident.
The lender’s responsibility goes beyond just acquiring the loan. They’re the one who knows how the lending process works, they want you to get the loan, and they should want you to get the loan that best suits your situation. It’s their job to help you understand what that means.
When a lender suggests an option it is critical that you understand the different consequences of that choice. With lending there is no universal secret that is going to save you money. There is no clandestine piece of information that no one wants to tell you about. It is better to consider the situation as a series of options with different consequences. These different options and consequences can be more or less beneficial depending on your financial situation and your long term plans.
Let’s say the lender suggests “buying down your interest rate.” This could be very beneficial to you depending on your situation. It also might not be possible in your unique situation. What’s important is that you ask the lender to explain to you (until you understand) what this choice means. Some quick questions to consider…
- How does that change the cost of my loan, now and in the long run?
- What is the benefit?
- What is the consequence?
Buying down your interest rate means that you are paying an upfront fee to reduce the amount of the interest rate. You pay more money initially but save money over the life of the loan. If you aren’t planning on keeping the home long, this is not a good option. If you are trying to pay down the loan aggressively or are likely to be in the home for a significant amount of time, this could be a great option for you. You pay a couple extra thousand initially but are paying less in interest each month. If your lender can’t satisfactorily explain this to you, you shouldn’t agree to it. But you can always ask your agent for advice.
Don’t Be Afraid to Ask Your Agent
Tell the lender that you’d like to discuss the situation with your agent first. Your lender shouldn’t have any problems with that. If your agent feels like something needs to be clarified he or she should contact the lender to get clarification.
The numbers represented in the document below represent a failure on the parts of either the agents, lenders, or both. It is also YOUR responsibility to speak up when you need more information and to not stop asking questions until you understand what you are getting in to. Do that, and you will have a much more rewarding and empowering experience in financing your home purchase.
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