Real estate finance may be the specialty for you. Compared to developing your expertise in negotiating, pricing property or technology, the amazing field of real estate finance can be yours with little cost and a limited investment in time. Here's what you will need:

• Less than $70 for an excellent real estate calculator

• A little finance information from a book, brochure or training course

• Forty-five minutes before each meeting with new prospective client

The Calculator

The calculator needs to have specific functions that are applicable to real estate - a series of buttons so that when you are given the interest rate, length or amortization period for the loan (usually thirty years), and loan amount, you can calculate the monthly payment. More advanced calculations use the future value key as well. For 95% of your calculations, as long as the future value was set to the default value of zero, you'll be fine and rarely need the future value key.

Two excellent calculators that you might consider are Hewlett Packard’s12c () listed for $69 and Texas Instrument’s BA Real Estate(TM) listed for about $55, including a user guide.

Many REALTOR® Associations have arrangements in place with one or both of these companies. Please check with your associations before purchasing your calculator to find out whether they can help you buy it for less money.

A little finance education

Different people learn differently. If it is a classroom setting that works for you, take the Residential Sales Council (CRS) finance course: Financing and Taxes Made Simple (RS 205 at http://www.crs.com).

If you prefer to learn on your own, work through Fannie Mae’s free finance brochures: Choosing the Mortgage That’s Right For You, Knowing and Understanding Your Credit, and Borrowing Basics: What You Do Not Know Can Hurt You (1-800-688-4663).

Forty-Five Minutes

For real estate finance to become your speciality, you need to learn how to qualify a buyer (qualification ratios, FICO scores, sufficient cash) and what the most significant secondary mortgage market criteria are.

The three steps that take forty-five minutes to complete are:

• Collect the necessary information

• Use three formulas (see tomorrow's Agent News for calculating PITI)

• Practice.

  Collect ahead of time the monthly numbers for a property similar to one the potential buyer is interested in purchasing: property taxes, home insurance (also called hazard or fire insurance in some communities), the average homeowners’ or condominium association fees, and mortgage insurance (PMI).

  The property tax and association fee amounts can be taken from the MLS data for one of the homes that might be of interest to them. My lender has always had basic information on likely home insurance and mortgage insurance figures for multiple price ranges and types of loans.

  A lender’s latest rate sheet will also be useful. My lender sends me a rate sheet weekly with rates for conforming and jumbo loans, fixed-rate and adjustable loans, as well as FHA, VA, 5/25, and 7/23 loan products. This is critical, because when the buyers’ eyes grow wide as they see you qualify them, the next question they ask will be about a different loan product, or paying a different number of points. The issue is whether you know the interest rates for the second loan in question. A recent rate sheet is critical to continue to serve their needs and encourage their growing perception of your financial expertise.

  If you already know how to use the appropriate formulas to qualify a buyer, that’s terrific. In my experience that puts you in the top 30% of real estate agents. Nevertheless, I’ve seen agents go down in flames working the numbers with their clients. They knew the calculations, but hadn’t taken the time to collect the necessary information ahead of time. Once you practice and master the numbers, this forty-five minutes of preparation can be cut to just fifteen minutes.

  Money-making tip: Use the right words: loan-to-value ratios, front-end ratios, and back-end ratios. It is important to discuss the loan-to-value ratios as a trained professional rather than chatting about how much money their down payment will be. For example, the buyer says he wants a normal loan with 10% down. Respond by saying:

  “I understand. You’re looking for a 30-year fixed-rate loan with a 90% loan-to-value ratio.”

  In a similar conversation, when your prospects talk about their housing and debt ratios, use the lender’s terms – front-end and back-end ratios – to enhance your image as an expert on whom they can depend.

  With practice, working the numbers will become second nature and you will be able to prepare to qualify your prospects in about 15 minutes.

  Part II - Prequalifying Buyers With PITI will run on Agent News tomorrow.

Published: March 25, 2002

Use of this article without permission is a violation of federal copyright laws.

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