June 20, 2023

Busting First-Time Home Buying Myths: Talking Points for Loan Officers

Buying a new home is one of the most important, highly emotional, and expensive decisions your clients will ever make. 

But unfortunately, there’s a lack of education, especially among first-time homebuyers. 

These myths not only have a tendency to steer your clients down the wrong path, but they could also be the reason why some potential first-time homebuyers are still sitting on the sidelines or even exiting your pipeline altogether.

And busting these myths about buying a home is exactly where you’ll find opportunity.

That’s why we’re going to dispel some of the most common home buying and mortgage myths, helping you attract more homebuyers.

Short on time? Grab our free cheat sheet with the talking points summarized here:

Myth: Current Interest Rates Are Too High to Buy a Home

When asked what’s preventing first-time homebuyers from purchasing a new home, 26% of homeowners cited current mortgage rates. This apprehension isn’t without cause. Rates in May for a 30-year fixed mortgage rose to just over 7%, after hovering around 3% in 2020 and 2021.

rise in mortgage interest rates

The rise in rates caused many first-time homebuyers to park themselves on the sidelines, waiting for rates to dip. However, mortgage expert Barry Habib told us this could happen as summer unfolds and inflation rates ease. In the meantime, how do you address the issue of high rates to encourage more of these tentative first-time buyers into the market as a loan officer?

First, encourage and advise your clients to take a step back and see the big picture. Sure, there are many factors to consider when deciding whether it's a good time to buy. But the key to focus on is asking your client, “When is a good time to buy for you?”

After all, it's your client who's buying the property, not the market, and not the interest rates. If their personal circumstances align with buying a home, then it could be the right move. 

Secondly, there's the financial argument to buying a home, even during a time with high-interest rates.

Many homebuyers are likely juggling various debts— credit cards, student loans, personal loans, and so on. These could all carry interest rates higher than an intimidating +6% rate. For example, the average car payment for new vehicles at the end of Q2 2022 was a record-high of $716 per month, up 10.8% for new vehicles.

This is where you, their personal financial expert, can show them how to restructure their debt, and potentially reduce their overall monthly payments

Interest rates aside, you can guide your clients to consider both the emotional factors and their total financial situation. Help them understand that in many cases, a mortgage can be an effective debt management tool, not just a stepping stone to homeownership.

Myth: You Need a 20% Down Payment to Buy a Home

A whopping 43% of potential buyers are under the impression that a 20% down payment is a must-have.

On top of that, only 11% of first-time homebuyers are aware that they can get into a new home with as little as 5% down.

Yet the typical down payment for first-time buyers is just 6%.

Putting down 20% can help your clients avoid paying private mortgage insurance, but here's the key point to remind your clients: with a conventional loan, you can own a home with as little as a 3% down payment. And don't forget, some government-backed loans have zero down payment stipulations.

Let's consider your client buys a home with less than 20% down through a conventional loan. If you’re adding your clients to Homebot after closing, the mortgage insurance module will offer them valuable insights on when they might be in a position to refinance and say goodbye to their PMI altogether.

Homebot PMI module

Sharing this kind of information not only helps you bust the 20% down payment myth but also cements your position as a trusted advisor for your client. It's about enlightening them on how private mortgage insurance operates, how to keep tabs on it, and how to eventually eliminate it.

Myth: First-Time Homebuyers are Vanishing from the Market

Recent data might lead you to believe that first-time buyers are getting scarce, accounting for just 26% of the market – a new low since the National Association of Realtors started tracking. 

The culprits? Rising interest rates, limited inventory, climbing prices, and a lack of knowledge — this lack of knowledge might be what's keeping potential buyers at bay.  That's why educating your clients and leveraging platforms like social media to share your content is vital. Need some social media inspiration? Take a look at how Kelly Rogers at Fairway Mortgage uses it to boost her business.

The drop in first-time buyers isn't entirely a storm cloud on the horizon. Business Insider highlights that Gen Z (Millennials) are ‘coming for the housing market.’

In the next decade, about 3.1 million people in the U.S. will hit the average age for first-time homebuyers - that's 3.1 million more than the last decade, consisting of mostly Millennials and Gen-Z. This indicates a coming spike in demand, despite an already tight market for those hunting for their first home. 

So, it's clear: there’s soon to be a tidal wave of Millennial and Gen Z first-time homebuyers in the market.

The coming tidal wave of Millennial and Gen Z first-time homebuyers in the market.

The graph above shows the significant demand among Millennials under 32 years of age. As they approach the prime age for home buying, demand from this group is poised to stay high. 

When it comes to Gen Z, in one survey 86% of Gen Z respondents have their eyes set on homeownership, with 45% planning to buy within the next five years.

So, if you hear murmurs about first-time homebuyers evaporating from the market or that Millennials aspire to be ‘forever renters', think again. Both Millennial and Gen Z buyers are eager for information, valuable content, and loan officers ready to advise them through each stage of the home buying journey.

Myth: You Need a Great Credit Score to Buy a Home

Many first-time homebuyers worry that their credit score is too low to buy a home. 

Here's where your role morphs from being just a loan officer to a trusted advisor. Remind your clients that while a credit score is a crucial piece of the home buying puzzle, it's not the sole determinant. Certainly, a higher score could unlock better loan terms and interest rates, but it's not a mandatory ticket to homeownership.

When faced with a client who's worried over a less-than-stellar credit score, introduce them to loan programs crafted specifically for those with lower ratings. Make sure your clients grasp the fact that lenders look at a variety of factors, not just credit scores when approving a mortgage. Urge them not to be disheartened by a less-than-ideal credit score, and instead explore all of their available options.

One such option could be an FHA loan. If your client has low credit and is buying their first home, an FHA loan could be a great fit. 

With an FHA loan, your clients can potentially buy a home with a modest 3.5% down payment and a credit score as low as 580 points. If they can rustle up at least 10% for a down payment, they may even qualify for an FHA loan with a score that dips down to 500 points.

Myth: Renting is Always Cheaper Than Buying a Home

With soaring rates and housing prices hitting historical peaks, many first-time buyers are convinced that renting is a more budget-friendly option. But is it?

The renting versus buying conundrum is an ongoing debate. The honest answer is that – “it depends.” 

It depends on local housing market dynamics, the individual buyer's financial condition, the emotional factors shaping their choices, and their long-term objectives.

So how do you debunk this myth for first-time homebuyers who might be on the fence?

Consider these talking points:

Unmasking the Wealth-Building Power of Homeownership

The first step to debunking this notion is to give your clients a sneak peek into what buying a home truly involves. It's not just about signing checks for down payments and dealing with miscellaneous costs.

Believe it or not, 83% of the average American's wealth by retirement is bundled up in home equity.

Shine a spotlight on the fact that owning a home is a solid investment, steadily building wealth over time. This could mean a financial profit down the line, a step-up to a larger house, or an opportunity to tap into the equity for various needs, like a much-dreamed-of-home makeover.

If you're armed with Homebot, you can even lay out the picture for your client on how their home value can snowball over time within the Home Digest.

Homebot Digest

Sure, your client doesn't own a home yet, so they won't have their home in Homebot. But that doesn't stop you from pulling up a Digest Report to help visualize what equity looks like, how it grows, and all the possibilities they can unlock with it.

Educate First-Time Buyers About Their Local Markets

We've discussed how a 'knowledge gap' might be a huge factor in the recent decline of first-time homebuyers in the market. 

This gap isn't just about understanding mortgages, but also grasping the nuances of their local markets. Things like figuring out the right market to choose, or deciding if a house is a smart, fair, and weak buy can be quite daunting.

That's where you enter the picture. You're in the perfect position to educate these homebuyers on the ins and outs of the market, guiding them toward their dream of homeownership and helping them snag the best possible deal along the way.

The ideal tool to achieve this? Get your client on Homebot and introduce them to Homebot's Home Search.

With Home Search, your client can browse their preferred markets and gain financial insights that they won't find on any other search platforms.

Homebot home search

Every month, your clients will get updates tailored to their local market conditions helping them figure out when the time is right to buy and connecting them directly to you.

Plus, as the loan officer, you get access to behavioral insights and the capacity to send direct messages. This way, you can keep a finger on the pulse and stay in touch with your buyers as they search for their first dream home. 

Exploring the Emotional Rewards of Homeownership:

There's more to buying a home than financial reasons—it's a deeply personal and emotional journey, too. Maybe it's about shortening the distance to family, landing in a top-tier school district for the kids, or simply having a space your client can call their own.

The sense of security and pride that comes bundled with owning a home is priceless. Plus, homeownership grants your clients the freedom to customize their space to reflect their personality and lifestyle, an option typically off the table with rentals.

Spend some quality time with your clients to hone in on what truly matters to them. Are they eyeing financial gains? The emotional payoff? Or a bit of both?

Myth: After the Offer is Accepted, the Deal is Done

First-time homebuyers might think that once their offer is accepted, it's time to break out the champagne. But, in reality, that's not the finish line - there's more work to do, and even some potential for more bargaining.

If you're a loan officer, this is your chance to show your clients that you're not just about securing the deal, you're there to help navigate the twists and turns of the home-buying process. This includes what's to come after the offer is accepted.

Take the time to demystify things like contingencies. Explain ahead of time what your clients can expect during the phases of appraisal, financing, and clearing the title.

As a loan officer, a goal to aim for is becoming your client's go-to expert for all of their home financing needs, whether that's their next home purchase, a refi, or something else. This means sticking with them even after the keys have been handed over. The added benefit here is the potential to enhance your retention rate. As Charlie Pratt, CEO of Homebot, emphasizes, such an improvement could pave the way for exponential growth.

How to Address These First Time Home Buying Myths

It’s clear that homeownership is often riddled with myths about home buying, especially among first-time homebuyers.

These pervasive myths about buying a home can mislead your clients, directing them down unproductive avenues and possibly deter first-time homebuyers from getting off the sideline and building wealth through homeownership. 

By cutting through the myths and providing your clients with a solid understanding of their local markets, you’re not just assisting them in finding a home - you’re empowering them to make informed and confident decisions in their journey to homeownership.

To help you speak to these points when talking to first-time homebuyers, we’ve compiled the talking points into a quick cheat sheet that reference on your own. Click here to grab your copy.

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