While there are some unavoidable hurdles to purchasing a new home, such as low inventory, higher interest rates don’t necessarily have to be the hurdle that stops your clients from buying. Contrary to what they might believe, mortgage interest rates may not be the most important factor. There are plenty of numbers that go into a monthly mortgage amount, like the price of the home and the loan term, and the interest rate is only one piece of the puzzle. What matters most is when they’re ready to buy.
From an adjustable-rate mortgage to a FHA or VA loan, there are options to discuss with your clients to help them keep their goals in sight. There’s also the option of buying now with the potential to refinance later when rates drop. Keep in mind that we’re here to guide them in determining if any of these options are a good fit and help them determine a timeline to achieving their goal.
For your clients with a credit score below conventional loan requirements or who have limited cash for a down payment, a FHA loan may help them pave a pathway to success. This can be a great option for both first-time buyers and repeat buyers. This government-backed loan offers more flexible lending requirements than conventional loans. While the interest rate may be somewhat higher than that of a conventional mortgage and mortgage insurance is required, the affordable down payment as low as 3.5% can be a worthwhile trade-off.
While many homebuyers prefer the security of a fixed-rate mortgage, an ARM loan can be a good choice, too. This option typically features lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase or decrease once the initial rate expires.
A VA loan can help active service members, veterans and eligible surviving spouses reach their homeownership goals. This option is backed by the Department of Veterans Affairs (VA) and requires little or no down payment. Even with no down payment, VA loans do not require mortgage insurance which results in an overall lower monthly payment.
This strategy is meant to help buyers who are ready to get into their dream home now, and then potentially refinance in the future when rates drop. It’s important to keep in mind that no one can predict if and when rates will drop or by how much. That means for some buyers, rates may never go low enough for a refinance to save them money.
Buyers can expect to pay somewhere between 2% and 5% of the loan principal in closing costs. Typically, a 1% rate drop is enough to justify refinancing. But it depends on the individual loan scenario. For example, rates will have to drop a lot more on a $100,000 loan than on a $1 million loan to make it worthwhile. If your client is considering this option, we’re here to help them crunch the numbers and explore the risks versus rewards.
If you have clients who are ready to buy, but the daily details of the market are causing them to second guess themselves, remind them that an affordable monthly payment is still possible. We’re here to help! Going over the above options and other factors with a trusted mortgage loan officer is a great way to help them firm up their plan and fast track their vision to becoming reality.