Interest Rates And Your Next Home Purchase

While managing a Real Estate office I watched one of our agents work
with some clients who wanted to buy a house and had received their
pre-approval for a loan. The realtor’s assumption was this couple, with
their approval were actually ready to make their purchase. Her clients
continued to look for a house but unfortunately were dragging their
feet, taking longer than what the agent thought they would take. The
purchasers were first time home buyers, who would be buying an entry
level house, which was really all that they could afford and in fact,
barely qualified for the mortgage. Here is the kicker and something to
always remember.



This couple failed to get locked in on an interest rate. In the interim,
interest rates went up which resulted in a higher monthly payment. They
no longer qualified for a house in the price range they had really
planned to buy in because the additional interest would put them over
the top of their pre-approved limit. They were forced to look for a
house that was somewhat less than what they had previously thought they
could buy. In fact, they decided to rent.



Here is a simple truth to remember and the numbers to follow are only
close approximates: Every time interest rates go up, the amount of house
you or I can afford to pay for goes down. In other words, instead of
being able to afford a $200,000 house, you maybe can only finance a
property for $175,000. Why? The answer is simple: Let’s assume that I am
approved for a payment of $978 per month – a $200,000 dollar Mortgage
at 4.2%. Interest rates rise to 5.2% resulting in a payment of $1098 per
month for the same amount of house - $200,000. If I am eligible for a
maximum payment of only $980 then I will have no choice but to look for a
property that costs less. This scenario would potentially hurt a first
time home buyer the most.



I would never suggest to anyone that this is the absolute right time for
you to buy a house, because only you, as a prospective buyer can
determine the best time. On the other hand, you should be aware of the
fact that interest rates are in the low 4s as of this writing. Coupled
with this is one very important point: In many parts of the country
homes are selling at reduced prices compared to several years ago.



David L. Burrows, Realtor®

Classic Realty, Annandale, VA 22003
Write David
Web Site: Burrows Properties
Web Site: Virginia Online Home Search
Blog: Real Estate Starting Point

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