For the past few years, low-interest rates have been a major plus for those looking to purchase real estate. Unfortunately, those interest rates have been and continue to be on the rise. At this time last year, interest rates for a 30-year mortgage were around 3.8%. Today they’re averaging over 6%. Before long, buyers may start waiting for interest rates to go down before making a move.
If you’re working with buyers who are thinking along the same lines, here are four things you should let them know:
1. Waiting a few months to buy may lead to waiting a few years. Even a small rate hike keeps many buyers from qualifying for a mortgage. Some of these buyers have such a tight debt-to-income (DTI) ratio for mortgage qualification that $50 can send their ratio into a non-qualifying status. Just a 0.25% increase can result in losing financing on a purchase.
2. Buy and wait versus wait to buy? That is the question. There’s no way to know when or if rates will drop. Interest rates can be hard to predict. However, looking at past trends, rates probably won’t decline again for a while. The sooner a buyer can lock in their interest rate, the better. If they wait, rates could continue rising, and they may miss out on years of equity building. If interest rates eventually drop, your client may be able to refinance later.
3. Explore down payment assistance programs. Traditionally, down payment assistance programs were meant to help first-time homebuyers and those with lower incomes access homeownership. Many of these programs still have requirements that must be met to receive the funds. However, given how tight and tough the housing market currently is, your clients may want to investigate whether or not they qualify.
4. Get educated in adjustable-rate mortgage (ARMs) products. With interest rates having been so low during the past few years, a previously common home finance product, the adjustable-rate mortgage, has somewhat disappeared. However, with rates back up in the 5 – 6% range, these types of home loans are likely to make a comeback. There are traditional ARMs, as well as 3-, 5-, and 7-year ARMs where the rate is “fixed” like a conventional 30-year mortgage for either 3, 5, or 7 years (depending on the specific loan chosen) and doesn’t adjust until that fixed period has passed. This can be an excellent option for buyers who are planning to own their next home for less than 7 – 10 years.
Although higher rates have made homes more expensive, there are still more than a few good reasons for your clients to buy a home in this market. Homeownership is still a great way to build wealth, even if buyers have to pay more interest over the next few years.
If you have questions about working with buyers in this challenging market or anything else related to real estate, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
