Helping Clients Understand Their Loan Options
Home financing is never a one-size-fits-all solution. After all, home loans are as unique as the homes they fund and the borrowers who obtain them. That’s why it’s critical to explore any and all options with each new client.
Most buyers won’t know what they’re looking for as soon as they walk through the door. While credit score, income, and down payment amount can lead you in one direction or another, property type can also be a consideration.
Once clients are comfortable with their different loan options, explore potential property types and experiment with how they might fund a purchase.
When clients set out to buy a house, they’re likely already considering a single-family home, whether they realize it or not. Double-check that this is the case, by confirming that they would like a free-standing building with no shared walls or amenities and their own land.
If they are in fact seeking a single-family home, you can then begin exploring loan options. Of course, there are plenty of ways to fund a single-family home purchase. Conventional loans can offer lower built-in fees in exchange for more rigid credit standards. An FHA loan may be a good option for a first-time buyer with a lower credit score, a USDA loan might apply to a rural purchase, and a VA loan could be a powerful option for a current and former service members or certain eligible dependents. A typical homeowner in certain higher priced markets like San Francisco or New York City may even need to investigate a jumbo loan for a standard single-family home purchase.
Whatever the case, ensure the single-family client understands the benefits of their most suitable loan type.
Some buyers may be interested in a triplex, and so on. This could be to generate passive income, accommodate a multi-generational household, or simply provide more space. Whatever the reason, ensure the client is clear on financing expectations.
Explain that buyers may qualify for a conventional, FHA, or VA loan as they would with a single-family purchase. Depending on the size of the property and whether or not they represent a business, they may also need to explore a commercial loan.
Similar to multifamily homes, buyers interested in should be prepared for shared walls and property. Be sure to explain that buying a condo can potentially save the client money, whether through the purchase directly or via insurance costs. Plus, no need to mow the lawn or shovel the driveway!
Most buyers may see some flexibility when it comes to financing a condo purchase. Conventional loans, FHA loans, and VA loans may be the most popular options. USDA loans are also possible, although you may want to clarify that there are likely far fewer condos available in rural and suburban areas than their urban/suburban counterparts.
While many buyers may assume that luxury automatically equates to mansion, luxury homes are simply those that are priced higher than many of the surrounding properties. So, explain that their definition will vary depending on market. For example, a luxury home in Aspen, Colorado, will look vastly different than a luxury home in Columbus, Ohio. Often times clients may opt to take out a jumbo loan for this type of property.
Lot or Land
Some clients may be interested in purchasing vacant land, whether to build on or for recreational purposes. Explain that associated costs will vary greatly depending on the location, and once you factor in size, proximity to neighbors and amenities, electrical grid access, drinking water, internet access, and more.
FHA construction loans and, in rare cases, VA loans and conventional loans, could be options. If the property is in a rural or suburban area, and if the client plans to build, a USDA Construction Loan could also be possible. In some cases, clients may also want to explore a land loan or lot loan.
Home Financing by Property Type
Whichever property type your client seems drawn to, the goal is to find a financial solution , and perhaps impart a little knowledge along the way. Then, when they’re ready for that luxury vacation home or their first multifamily investment, you’ll be the first one they call.
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