Home : Blogs : Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc : Broker Bryant's Real Estate Ramblings

No money? No problem.

Negotiated a deal on one of my listings yesterday. The Buyer is purchasing using 100% financing with Seller paying closing costs. My market is affordable housing with the majority of homes priced from $190s to $250s and it seems like most of the Buyers lately have been purchasing with no money down. Now don't get me wrong I am in favor of homeownership for everyone but I fear a lot of the Buyers are going to have financial difficulties in the near future. With high insurance costs, property taxes and mortgage payments I am seeing payments of close to $2,000 per month for a starter home. That's a pretty big nut to crack every month in my area where most families are regular working class people and don't have any reserve funds if they should encounter a financial setback.

Also, a good number of these purchases are being made with ARMs with the Buyers basing their ability to pay on future raises at work or a part time job that they may or may not be getting. In my opinion Mortgage Brokers and Realtors are being overly aggressive in selling these folks on the advantages of homeownership without really taking the time to counsel the Buyers on the true costs involved. And since they don't have to come up with any money at closing they are sitting ducks for Mortgage Brokers who are charging them sometimes outrageous fees for doing these types of loans.

So my challenge to Realtors who are dealing with first time Homebuyers with a little or no money down is to really take the time to explain the pros and cons of purchasing a home. If the Buyers are fully informed and are wanting to move forward then help them to negotiate fees or guide them to the myriad of programs available that can help them with financial assistance. Placing a Buyer in a home he can't afford can damage them for years. It can cause bankruptcies, divorces and even illnesses. So let's "Protect the public" it's what Realtors are supposed to do.

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 07/29/2006 05:34 PM

Comments (8)

first time homebuyers, financial assistance, ethics

8 Comments on No money? No problem.

JUL

2006

I gather that telling them to add another zero to their checking is out of the question? Kum La Ka Lakka.

Buying a home is the best and biggest investment most people make. Why pay someone else's mortgage your whole life?

Absolutely - our fiduciary duty is to our client - to help them make the best decision for themselves and their future. What's best for one, isn't necessarily best for another. For some people, paying someone elses mortgage may be the best decision at this point in their life. Realtors need to start thinking about their clients well being before their own.

JUL

2006

Talk about being overly agressive. A year and a half ago, a friend advised me to refi to an ARM because Alan Greenspan said it was a smart thing to do. We now know that Alan retired, and with good reason, what lousy advice. Not that his replacement is any better, mind you.

Real estate agents: mortgage loan originators do not owe any fiduciary duties to your homebuyers. At this point in their profession, mortgage brokers (and the loan originators who work for them) are at a crossroads: Elevate the ethical standards of their profession or leave things the way they are and face harsher government regulation. In the history of any profession, we are always better off self-regulating rather than letting the government regulate for us. I am hopeful!

Jacqulyn, you are right that buying ahome is the biggest and best investment people can make. THat is exactly why it is so important that a good decision is made. Unfortunately, folks with marginal finances and credit are very anxious to buy when someone says "I can help you". Even though that someone may not be looking out for them at all and could be selling them something that is not in their best interest. Thats where Realtors can help.

SEP

2006

Bryant, Your concerns are genuine. Many loan originators/mortgage brokers have placed their trusting clients in "harm's way". A day of reckoning will arrive for many and they will fail the test of homeownership. In many of the foreclosures you will find the "Option ARM" as the root cause. All to often the loan officers fail to adequately explain the true nature of this loan product. The originator/broker is more interested in the commission than their clients welfare. The means in no way justified the end! This product is for very savvy borrowers and investors that are financially sound. The typical first-time homebuyer should never be offered this product.

OCT

2006

Bryant,

So true and very good info. I agree and disagree. I agree, because so many loan officers don't know what they are doing or just are looking at their wallets and not the clients.

Why I disagree about realtors jumping in is because too many of them don't know what they are talking about also. I have had some realtors ruin a deal for me or lose a deal and had them go to their loan officer who gave very poor service and a worse deal.

It's a catch 22. I am very good at what I do and one of the first things I get is the clients goals..... and in regards to the arms. Sometimes they can't be helped.

Example: If I have a client that has a 580 score and can't go FHA, the next available solution is sub-prime and do a 100% loan. And because these rates are a tad higher, I need to offer them a 2/28 arm just to keep their payment down. If I give them a 30 yr fixed, the rate is now going to be about 3/4% higher, on the average. Sure, they run a risk with an arm, but I tell them that I will come back and refinance them in 1 to 2 years, depending if there is a pre-payment penalty. But everything that I offer them in regards to rate and fees is going to be the same profitability as if I were to give the an FHA deal or a person with 700 credit scores and great assets.

Again, I see your point. But if I don't do this, someone else will. But usually at a greater price to the client. The worst part is that many of these loan officers and lenders will take advantage of someone with less than perfect great. And yes, these Options arms are only for the SAVY client or experienced real estate investor. I know one company that this program is 90% of their business...and yes, we will see a huge foreclosure rate in the next 8 to 14 months.

Again...good topic...but a very fine line when it comes to realtors stepping in. Even if they thing their loan officer is the "BOMB", "the best".... are they sure about this? LOL Seriously.... people need to make money....realtors want us to cut fees or give better rates. I don't see realtors usually..I saw usually, cutting their commissions. I only see it when the deal is going south and they chip in to make it work.

Again...good topic though. Sorry for the babble...

jeff

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