June has been dubbed by the Department of Housing and Urban Development (HUD) as National Homeownership Month – a time to spotlight the importance of keeping the dream of homeownership alive and the myriad benefits it offers to families, neighborhoods, and communities across the country.
Homeownership continues to be one of the top wealth-building actions you can take in the United States. According to the National Association of Realtors, 99% of metro areas in the U.S. experienced year-over-year price increases in Q1 of 2021, and the median existing single-family sales price rose at an annual pace of 16.2%. This demonstrates, and follows the long trend line, that home equity continues to be an aggregator of wealth.
No doubt, the current climate continues to change as states begin reopening and workplaces create long-range return-to-work plans taking into account their pandemic experiences. But through the confusion, you can be a guiding force for your sphere. Whether individuals are looking to buy or struggling through these times, here is what you can do to keep the dream of homeownership alive:
Fact-check the fears
Taking the plunge into homeownership can be scary, and first-time homebuyers considering making the transition from renter to homeowner might voice fears and uncertainties surrounding the process along the way – especially during a market shift. When that happens, be prepared to act as a fiduciary, responding in an empathetic manner while giving the client your clear, objective thoughts as they share emotion-based fears. Below, ways to provide clients with peace of mind as they share the most common fears with homeownership.
1. “I should wait until the real estate market gets better.” There is never a wrong time to buy the right home. Historically, focusing only on the market is not the best approach to buying the right home. Whether right means the right price or the right property for you, waiting to time the market seldom works to your advantage.
It’s the long-term factors that make real estate a solid investment. Making money in real estate comes one of two ways: By happening upon the right moment to purchase your home before its price appreciates, or holding it long enough over time so that appreciation makes your purchase investment right.
2. “I don’t have the money for a down payment.” Many people believe that making a home purchase requires a substantial down payment, but that is seldom true. As a first-time homebuyer, there are always options available that require much less than the intimidating 20% down payment people seem to see as the norm. Some options can be as low as 5%.
“House-hacking” can also be a great way to make homeownership a more affordable option. In simple terms, house-hacking means purchasing a piece of real estate, like a single family home or duplex, and leasing out one of the bedrooms or units. The reality is, there are many legitimate and sound financing options to choose from, and it only makes sense to investigate which one is right for you, your circumstances, and your pocket book.
3. “I can’t buy a home because my credit is not great.” A less-than-perfect credit score won’t necessarily prevent you from buying a home. Typically, there are two types of credit challenges – a poor credit history or no credit history. If your credit score is less-than-ideal, do still talk to several lenders to explore your options. You might be pleasantly surprised at the outcome. A good loan officer or mortgage specialist should be able to help resolve any challenges, often by simply showing you how to move or consolidate your debts, or by referring you to a credit counselor who will put you on a plan.
If you are new to the workforce or have not made regular purchases on credit, you might not have a credit history at all. One common avenue for first-time home buyers is to secure financing with the help of a cosigner, such as a parent or close relative who is willing to stand by your ability to make payments. Or, you can find a lender who is willing to use alternative forms of payment history, such as student loans, rent, and utilities. There is no better way to improve or establish your credit rating than by having a mortgage and making timely payments.
4. “I should pay off my student loans before buying a home.” Student loan debt doesn’t prevent you from buying a home. More than ever, student loans have become a larger burden on first-time homebuyers. According to a study conducted by the Society of Actuaries, “about 31% of millennials report holding student loans, significantly higher than earlier generations.” Having loans should not impede your homeownership journey, but they will impact your mortgage in two ways: payment history and debt-to-income ratio. If you want to buy a home, it is important not to be late or unable to make debt payments.
Lowering your debt-to-income ratio takes more time, so, if you want to purchase a home and need to lower your ratio, you will need a plan. Contact a financial adviser, set aside money every month from your paycheck that you can use as extra payment, or increase your monthly payments to aggressively pay down loans.
How to calculate your debt-to-income ratio: add up all monthly debts, including credit card bills, student loan payments, car notes, etc. Once they are tallied up, divide that number by your gross monthly income. Then, multiply the result by 100 to get a percentage.
Assist your at-risk homeowners
The events of the past year may have left some of your clients in very difficult financial situations and struggling to pay their mortgages. Now is the time to come from a place of care and provide your sphere with resources and information on protecting their investments. Take time to educate yourself on the resources available to your clientele. The National Association of Realtors provides a comprehensive at-risk homeowners guide at no cost, as well as a regularly updated hub on how COVID-19 has impacted the market and available resources.
Be an agent of change
Tackle the very roots of the problem by reaching out to your local board to participate in policymaking that advocates for easier access to the dream of homeownership. In Pennsylvania, former Pennsylvania Association of Realtors president and current PA house member and KW agent Todd Polinchock used his real estate background to create systematic change by filing HB 2412 in April 2020. The bill, which would reopen real estate and related ancillary businesses, passed within the Senate, but was ultimately vetoed by the governor. Nevertheless, the governor signed an executive order permitting “businesses and employees in the real estate industry to conduct limited business-related activities.”
Some system-changing initiatives, such as Polinchock’s, are situational. Others, such as the Equality Act (a bill in the United States Congress that, if passed, would prohibit discrimination on the basis of sexual orientation and gender identity in a multitude of areas including housing), are long-term marathons that have the power to propel the dream of homeownership further. “Currently, there are no federal protections for people based on sexual orientation or gender identity,” shares Florida-based agent Dave Gervase. “Not having that protection has kept LGBTQ+ people from the dream of homeownership.”
As Gervase shows, not everyone is on equal footing when it comes to achieving the dream of homeownership. And, as an agent of change, you have the power to be a part of the change that makes the dream available across all demographics. But, taking a stand and fighting barriers to entry does not just happen through bills and regulations. Newly appointed Head of Inclusion and Belonging Julia Lashay Israel promotes change by pouring her experience into volunteer roles. An advocate for advancing homeownership in minority communities, Israel has lent her voice to the Minnesota Association of Realtors and the National Association of Realtors Housing Opportunity Committee, and founded the Twin Cities NAREB chapter.
“As Realtors, we are equipped with knowledge and information to help build and develop our communities,” she shares. “To me, volunteerism is a civic duty.”
Provide virtual options
As we return to some semblance of normalcy, some clients may still feel uncomfortable with fully immersing themselves into pre-pandemic times. Remove health and safety-related homebuying barriers to entry by making it easy for clients to connect with you virtually. Virtual open houses are time-tested techniques for agents dealing with buyers who might be relocating and unable to tour new homes. And virtual homeownership seminars – like this one – have stepped at the forefront of how agents are doing business in a manner that’s caring and considerate toward clients.
If you are a Keller Williams agent, the KW App has made it easier than ever to allow clients to partake in real estate transactions from anywhere with phone service. You can digitize the home-buying and selling experience by giving people the option to search by ZIP code, school zone, or via the Neighborhood feature; provide the best possible options for them via Featured Listings; or schedule virtual tours right through the app.
There is still plenty of work to do in keeping the dream of homeownership alive – both in arming our communities with information that educates and empowers them to realize their homeownership dreams are within reach, and in changing the systems and processes of achieving the dream. This month, take some time to think about your role in shaping the future of homeownership.
What are you actively doing to keep the dream alive? Stay excited and inspired.