Should I Buy Now or Wait? (I ask, "Wait for What?)

I just received an email from one of my mortgage loan officer colleagues. Great explanation of how interest rates affect payment. People become so focused on the lowest price for a home and do not take into consideration that the clock is ticking and rates are highly volatile. Live within your means and buy what you can afford when the time is right for you. We will see if the release of the December foreclosure freeze brings new inventory to the market that is littered with highly unpredicatable short sales. And prices have creeped up a little on the lower end inventory. For many, a mortgage payment is still equal to or better than rent. We are here to help when the time is right. Free money still availabe with NSP First Time Home Buyers program in select zip codes/areas.

Taken from daily email blog of Mike Roberts of V.I.P Mortgage Inc. http://www.mikerobertsmortgage.com/

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So what does all that really mean for you and your buyers besides "Rates are going up! Buy Now!"?

First you need to understand how a mortgage qualification works. When a buyer qualifies for a mortgage, they are NOT qualifying for a specific sales price or loan amount. They are qualifying for a specific PAYMENT. If rates go up then payments go up and a buyer qualifies for less home. Period.

Rule of Thumb: For every half of a percent that rates go up, their buying power decreases by 5-6%.

For example, if John Doe wants to buy a home at 250k and put down 20%, his loan amount would be $200k with a 30year loan repayment of $1073 at 5% interest rate. If rates crept to 5.5% then that same payment would only allow a $189k loan amount; which equals a $236k sales price. He would have to find a home at $236k instead of $250k to have the same payment. If rates jumped to 7% then he would only qualify for a $201k house!

So if you have a buyer that wants to wait for the market to drop another 10% before buying, they better hope that rates don't jump by more than 1% by the time they purchase.


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Thanks Mike
Mike Roberts Mortgage VIP Mortgage Inc