Interest rates are going up, but buyers are still looking to buy and often need loans to accomplish their goal. It is interesting to watch those borrowers adapt to the changing market circumstances. Rates recently went over 5%, still a great rate, but seemingly high compared to what they were a year or even a few months ago. Buyers are still obtaining purchase money loans, but are looking at different loan programs to do so. Many buyers are anticipating that rates will go down in the near future. What is the near future? Perhaps, the next two to five years. If they go down 1.5%, or more, it will be cost effective for them to refinance at that time to the then-lower prevailing rate. What do they do in the interim? Remember Adjustable Rate Mortgages? Yes, those loans that start out at a low teaser rate and then move with the market. Many buyers are getting ARM loans understanding that they will cost less during the interim period while they wait for the rates to subside than if they were to get the typical prevailing rate loan. If you are considering getting an Adjustable Rate Mortgage there are a few things to consider. Look at the start rate, that is what you will be qualifying at. Look at the annual or semi-annual interest rate adjustment parameters, how much it can go up or down in a given period. The adjustment limits should be reasonable, i.e., maximum of 2% or less. Some such loans will convert to a fixed rate after a period of time. Look at all the details when you are evaluating the loan. Once you know the details, assess the cost of the loan and see how you will be affected over the anticipated time frame before you will refinance or sell the property. Then you can consider today’s pricing of the property. If the value has gone down 10% from two months ago you might find very favorable numbers with which to proceed with your purchase. Those numbers should include what your closing costs and payment would have been in the earlier market given pricing and interest rates compared to what it is today as you are structuring your purchase. Some borrowers are choosing to pay points to buy the rate down. In doing so, they eliminate the risk of relying on adjusting interest rates as it allows you to get a fixed rate loan for the period of time within which you choose to pay it back, i.e., 15 or 30 years. Buying a rate down costs money up front, but when taking this course you are looking at a longer holding period and it will pay back over time. Each point represents 1% of the loan amount. Talk to your lender about what it would take to buy the rate down to a point that you are comfortable with and how the process would work for you. You can usually include your points paid in your loan amount if you have sufficient “skin in the game.” Remember the real yet intangible value of the emotional return on your investment. If you are able to buy a home and have the security of not being evicted, enjoying the benefit of improvements you make to the property, and the pride of home ownership that you and your family will experience, you will have an added return on your investment in your home far beyond the obvious financial return. Only you can measure that investment reward so be sure to personally reflect on this concept during the process of evaluating your purchase money loan. The real estate and loan markets will always change. You know that the only thing that is constant is change itself. With that in mind, be flexible in your approach to the market and adjust to what is happening when the time is right for you to buy. You will always be right if you wait to act because you will never know if your action taken or not taken is right until years have passed. Without glaring signs to the contrary, it is usually in your best interest to take the initiative, be proactive, and act. Make your plan and work your plan. History shows that you will be happy you did more often than not. When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704. dpwtigers@hotmail.com
