Read more: Fannie Mae unveils 2021 housing outlook
Sarkisian explained that these out-of-pocket costs can run into the thousands, or tens of thousands, in certain situations. This scenario has become so common that he now explains to each of his borrowers that his lenders will only lend on the appraised value and they need the cash reserves to cover the extra cost.
While for asset-rich or more liquid borrowers, that extra amount might not be a problem, a large number of first-time homebuyers might have the income to afford a mortgage but not enough assets to cover these closing costs in addition to the down payment. In some of these instances, Sarkisian shifts his borrowers from a conventional loan, requiring 5% down, into an FHA program that only requires 3.5%. While that route may have its drawbacks, Sarkisian believes that in certain scenarios it can free up much-needed liquidity. As a broker, Sarkisian can also get his borrowers a closing cost credit from certain lenders which can help alleviate some liquidity pressure.
Conversely, Sarkisian believes that one of the biggest mistakes a mortgage pro can make in this market is to not verify the client’s cash reserves upfront. Once the client is over the employment and credit hurdles, their broker has to make sure that they have the cash reserves to handle extra expenses and closing costs that might seem hidden.
While Sarkisian defers to real estate agents as his clients’ primary guide in the market, he serves as a source of sober second thought for them. It’s his role, he said, to remind them to be careful and not outbid themselves into something they can’t afford. While he can sometimes be the bearer of bad news, Sarkisian frames any disappointment as an opportunity for improvement. He positions the news as something akin to a grade in school – despite working hard, sometimes you get a lower grade, and that just means adjusting plans and working harder. He frames disappointing financial news as an opportunity for the client to improve their position, grow, and go after their goal from a stronger position.