Fallacies about the buying process keep many renters from exploring the possibility of buying a home, but savvy real estate agents know a little education can go a long way in turning many of these would-be renters into lifelong homeowners. Many renters consider home ownership out of reach, have concerns about economic uncertainty and fear of a housing downturn as reasons to sit on the sidelines, with many preferring to watch the market before making a move to buy.
Millennials are one of the hardest hit consumers, as many have neither a home to sell nor years of savings to leverage for the down payment. Recent studies have shown that millennials, who form the largest cohort of first-time buyers, are significantly behind both baby boomers and Gen Xers in their rate of homeownership. According to a Rentcafe.com study published in USA Today, younger adults are spending a stunning amount of money on rent — $93,000 by age 30. More importantly, rent sucks up about 45 percent of their income during this first, critical decade in the workforce, leaving little left over to save for a down payment and work toward home ownership.
As a real estate agent, you can help turn renters into home buyers by dispelling these five common myths:
- Renting Makes More Sense Because I May Move in Five Years
Sure, while it may make more sense to rent than to buy over a short term of a few months, the equation can easily flip with buying is the best value for a homeowner planning to stay for at least five years and, in some cases, as few as two years, according to personal finance site NerdWallet.com.
The New York Times, Realtor.com and Zillow all offer online calculators in which renters can calculate how long they need to live in a home before the purchase costs outweigh the merits of renting.
2. I Don’t Make Enough Money to Buy
Income is important but not as limiting as people may think. Just as there are high-income earners who are “house poor” (spending more than 30 percent of their income on their mortgage), there are people with modest incomes who are able to live comfortably in their own home.
Also, renters must bear in mind that rent is almost always guaranteed to go up, while the payments on a fixed-rate mortgage will not, making ownership the more budget-friendly approach over the long term.
Of course, many first-time buyers will need to pay down their debt and get their monthly spending organized before they can begin house-hunting. Agents specializing in this segment of the housing market should be willing to work with these clients months before they’re ready to buy, helping them assess all factors that will help make a home’s monthly payments affordable.
3. I Can’t Save Enough for a Down Payment
Most consumers are aware that following the housing crash of 2008, banks tightened their lending requirements. The perception is now you need 20 percent down to purchase a house. That means, bringing $50,000 to closing on a $250,000 house — a seemingly insurmountable task for most renters.
However, what many are not aware of are the various programs that allow first-time buyers to close on a house with almost nothing down.
4. There’s Nothing in my Price Range
Once a renter has been pre-approved for a mortgage, they have a good idea of their target price range. Then, when they start looking at the entry-level inventory, they find themselves up against a competitive market.
Here’s where agents can really demonstrate their value. An experienced agent will not only guide first-time buyers into areas where homes are more likely to be in their price range, but they can also help them find those rarer listings where a home that’s not necessarily move-in ready yet in a nicer neighbourhood is selling for less.
5. The Perfect House is Waiting for Me
Renters who have watched many real estate TV episodes may have unrealistic expectations about buying a property.
First, they may not be aware that every property has pros and cons. It’s important to remind them that finding an affordable home is going to involve some trade-offs, but ultimately, will offer the security and accomplishment of ownership.
Second, good houses go fast, so first-time buyers must be financially, mentally and emotionally ready to act.
It may not be the best time for you to buy your first home, but don’t believe that it isn’t a possibility based on common myths. Start saving and look into what you could do to make those first steps towards home ownership.