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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2012

The Importance of Being Educated

Educating clients early in the process can make your job easier

Imagine the following: A new client arrives at your office seeking information about everything from the definition of private mortgage insurance (PMI) to credit scores and mortgage loan types. Where do you begin with that customer’s education so that both your job and the customer’s experience will be easier? More important, what does the buyer need to know so that you can close this deal efficiently and retain the client’s business for life?

As almost any mortgage broker or originator knows, many buyers are unaware of the terms so widely used among mortgage professionals. Terms like credit scores, annual percentage rate (APR), points and private mortgage insurance may be familiar to mortgage professionals, but for many first-time homebuyers these terms can be overwhelming and confusing.

Although it may sound elementary, brokers and originators should take a step back and consider how they can explain these terms clearly and simply at the onset of a client interaction. Doing so at the beginning of the process can help you present yourself as a knowledgeable mortgage professional and a valuable source of information.

Credit scores

There’s an array of cost-free ways for homebuyers to find out what their credit scores are. Let them know that they can use Experian, Equifax and TransUnion, but also be sure to let them know that lenders will run all three reports for them during initial discussions with their loan officer.

Of course, there may be nuances in the mortgage transaction that can complicate the process. This is precisely why they need you and why acquiring a mortgage education is absolutely vital. A client may have an excellent credit score but then change the whole picture by requesting that a spouse be included on the application. Taking the time to explain such things upfront will save a lot of disappointment and time on the back end.

If a buyer’s credit score is too low, what next? Typically, with the help of a credit-repair company, many clients with scores under the desired 640 can have their scores raised within six months to a year. Regardless of the way in which you handle it, your job is to make sure that first-time homebuyers truly understand that their credit scores can make or break their ability to acquire a mortgage.

APRs

Another opportunity for educating new buyers arises when trying to explain the difference between their APRs and their mortgage rates. You may understand that an APR is the cost of a mortgage expressed in interest over time, but the same may not go for your customers. Originally used as a comparison shopping tool, APRs now are more difficult to understand, as there is no standard calculation used across the board. If you’re not completely well-versed in this topic, be sure to have another expert to whom you can refer your homebuyers.

Further, make sure that your clients understand that the interest rates they have at closing are the rates that will be used to calculate their monthly payments. Making sure that they’re clear about this will help to ensure that they end up being satisfied clients — and satisfied clients can lead to long-term customers.

Points

Points are another confusing topic for many new buyers. For most, the term points sounds like a good thing, as we all associate the act of earning points with doing something right, but as you know, in the lending industry, a point is something that you pay upfront to gain a lower interest rate for the life of a loan. This indeed may be a good thing ultimately, but do clients really understand that?

"Buyers also should be reminded that points can be tax deductible, so consider making a call to your lender or tax-adviser partners to help further educate your clients."

Helping your clients understand the related math will help them make better decisions. Clearly, the only way that buying points makes sense is if the money spent on points for a smaller interest rate will pay the buyer back in a reasonable time period.

Buyers also should be reminded that points can be tax deductible, so consider making a call to your lender or tax-adviser partners to help further educate your clients. With regards to the educational process, it can be helpful to have trustworthy third parties to call upon when you feel out of your depth on a subject.

PMI

Although private mortgage insurance is a widely discussed topic, many consumers still don’t understand it. In fact, in the minds of many new buyers, PMI is full of negative connotations. In properly educating their clients, however, brokers can clarify this topic while also touting some of the positive aspects of this insurance.

For instance, PMI allows the buyer to purchase a home with less than 20 percent down. PMI also only must be paid until the equity in the home reaches the required 20 percent. Make sure that your buyer knows that a home appraisal will be required to determine the actual value of the home before the insurance can be removed through refinancing. Buyers also must know that, in some cases, there is a requirement for a certain number of years of PMI, depending on the mortgage product.

• • •

Mortgage brokers and originators can rest assured that many borrowers will want to discuss PMI, as well as a multitude of other fundamental topics. The importance of these initial educational opportunities cannot be overstated. Building relationships and educating clients successfully in this economy is necessary so that we don’t find a number of our customers soon seeking out the definition of the word foreclosure.


 


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