Real estate professionals are often seen as the gatekeepers to homeownership. But rising home prices and rents are causing would-be homebuyers to need more than a gatekeeper — they need a bulldozer to clear the way.
The majority of renters report a number of obstacles are holding them back from buying a home, according to a Freddie Mac survey of U.S. renters and homeowners.
The survey asked renters about the obstacles they face in buying a home. Of those surveyed:
- 77% cited saving enough money for a down payment and closing costs;
- 76% cited high mortgage payments relative to current rent payments;
- 70% cited not enough income to make their desired mortgage payment;
- 63% cited a lack of credit history;
- 63% cited a lack of knowledge of the homebuying process;
- 59% cited not knowing someone to guide them through the homebuying process; and
- 36% cited not having access to mortgage forms and other paperwork in their native language.
One caveat to these survey results: these obstacles are mostly based on expectations, not actual experiences. For example, 76% report mortgage payments higher than their rent payments will be an obstacle to buying. In reality, renters tend to spend a higher share of their income on rent than homeowners spend on their own housing costs, according to the U.S. Census Bureau.
Another common misconception has to do with down payments. 77% cited not having enough money to cover a down payment and closing costs. But do these renters know how much money they need to buy?
A different Freddie Mac survey found that roughly one-in-three potential homebuyers believe they are required to pay a 20% down payment. But every real estate professional knows that, while recommended, a 20% down payment isn’t required. Federal Housing Administration (FHA)-insured mortgages require as little as 3.5% down and U.S. Department of Veterans Affairs (VA)-guaranteed mortgages will accept zero down.
Real estate agents inform, educate
A significant 59% of renters surveyed reported not knowing anyone to guide them through the homebuying process. 22% said this was a major obstacle to buying their first home.
The good news: many of the obstacles facing potential homebuyers can be removed or lessened by someone who will guide them through the process, a task for real estate brokers and agents.
Agents interested in reaching these homebuyers need to expand their marketing efforts to include renter communities. Often overlooked by real estate professionals, apartment complexes and neighborhoods popular with renters are rife with opportunity. The vast majority of these residents don’t have any loyalty to an existing real estate agent, as they’ve never purchased before. Renters are also unencumbered by an existing home and thus may find it easier to buy — when they are qualified.
Take the first step to reach more future homebuyers by sending FARM or marketing letters aimed at getting information into the hands of renters. Lay out your strategy to inform and ease anxieties of current renters by sending out targeted mailings. For example, you may start by sending out a general letter to pique their interest (see: Tired of the pitfalls of renting? Become a homeowner!). Then, follow up with information on how they can start building up their savings to buy (see: Save up for a down payment). Follow this up with advice on how to get started in the homebuying process (see: Tips for finding and buying your first home). Continue to send regular mailings, branding yourself in their minds as their local first-time homebuyer expert.
Check out first tuesday’s full library of 300+ FARM letter templates and copy, free to download and personalize here. Also, keep an eye out for first tuesday’s First-time Homebuyer Guide, available soon for purchase.