4 Factors That Determine Your Client’s Buying Power

handshake-2056021_640It doesn’t matter if they’re buying an investment property, their first family house or the home of their dreams, your clients are going to need to figure out their home buying power. As their real estate agent, you can play a pivotal role in educating your clients about their total home buying power. Which will not only make them more informed about the overall buying process but also more aware and ready to tackle the market head-on.

Your buying power is the combination of a couple of different factors of varying importance. We’re going to take a deeper look at these variables and how they interact and form you home buying power.

Location

Housing markets are like snowflakes—no two are alike. A comparable home in one market is likely to have a very different value in another housing market. For example, what they would have to pay for a single-family home in Nebraska is probably going to be double or triple that in San Francisco. Taxes will also vary from region to region and sometimes even city to city. Aside from property values and taxes, municipal laws and regulations will also change depending on your client’s location.

However, chances are that if you’re client has already contacted you, they are already aware of which market they would like to buy a home in.

Annual Income & Monthly Debt

After your client has found their desired market, they should figure out their annual income. Annual income isn’t determined simply by your salary, it’s everything that contributes to the overall money you receive throughout the year, like:

  • Salary
  • Commissions
  • Tips
  • Investment Income
  • Royalties
  • Quarterly Dividends

Once you’ve added that up, subtract all of the debt they have every month. When we say ‘debt’ we don’t mean ‘expenses’—think paying off your credit card, not buying groceries. Typical debts include:

  • Car Loans
  • Credit Cards
  • Student Loans
  • Medical Bills

When your trusted lender takes their gross monthly debt and divide by their gross monthly income, your client will see their debt-to-income ratio or DTI. Generally speaking, the lower the number, the better the score. In order to maximize their home buying power, your clients should be careful not to request any hard credit pulls prior to their pre-qualification process. For instance, say you need to buy a new house and a new car, get the house first; Locking into a new car payment before buying a home is going to impact your ability to purchase a home.

Credit Score

Banks and lenders won’t be looking at their DTI alone to determine if they want to provide them with a loan or not. They will also be looking at their credit score, which should be in as pristine condition as possible before applying. For an FHA loan, they’ll want to have a credit score over 580, unless they can afford some pretty obscene interest rates (Pro-tip: they shouldn’t even bother until their score is well above 580).

This is a factor that encompasses more than just the ability to buy a home, but to take out a loan of any kind—doing your best to stay on top of your credit score will get you far in life.

These items factored in with how much of a down payment they can afford (a solid rule of thumb is 20 percent of the offer) all come together to form the overall buying power that a person wields. Before setting the first appointment or even before picking up the phone, you can use your IDX website to capture lead data, including preferred property price range. With this data automatically synced to your CRM, you can walk into a meeting with prospective buyers armed with additional knowledge.

Arming yourself with as much knowledge about your clients will not only land you more sales, but build you up as a reputable leader and educator in your market.

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