In this video I discuss the rise in mortgage rates over the last year and how it is diminishing home buyers buying power. A 1% increase in rate diminishes your buying power by around 10%. The biggest risk for buyers right now is the decrease in their buying power.
Example in Northern Virginia Numbers:
- 4.5% interest rate, 30 year fixed loan, $3,000/month payment = $600,000 mortgage amount
- 5.5% interest rate, 30 year fixed loan, $3,000/month payment = $535,400 mortgage amount
- 6.5% interest rate, 30 year fixed loan, $3,000/month payment = $480,595 mortgage amount
When I bought my house in 1999 my interest rate was over 7% so this will be a reality. Last summer the rates were 3.75% and now they are around 4.625% and this is for our A paper clients. Meaning they have high credit scores and a low debt to income ratio. Your interest rate will be higher if you have a lower credit score and a higher debt to income ratio.
I had a client buy down an interest rate for the first time in a while. For example my client is buying a $500,000 house and is putting down a 15% downpayment which makes their mortgage amount $425,000. They decided to buy down the rate so this means in addition to their regular closing costs they will pre-pay $4,250 extra at closing to get their interest rate down a point. Luckily we were able to negotiate $10,000 in closing costs paid by the seller so it will cover the rate buy down. We are in a low inventory competitive multiple offer situation in Northern Virginia right now so transactions with the seller paying some of the buyers closing costs are few and far between.
If you are looking to buy the time is now before you are priced out of the market. Call, Text or Email me today to discuss your personal situation.