Guest blog post written by Josh Flores, Senior Loan Officer with Supreme Lending.
Often times I get the question from prospective new buyers as to whether or not waiting to buy is a good idea. With the market as hot as it is, it can get frustrating trying to find the right house at the right price. For many buyers it comes down to the right monthly payment.
When you speak to us lenders, we are also concerned with payment and how that factors into your debt to income ratio, aka, your “DTI.” When we pre-qualify a client, we are always asked to generate a maximum sales price so that buyers know what price range they need to search in. For approval purposes though, the price is not as important as the DTI for us. Of course all the other factors come into play (credit, assets, employment, etc.), but for now, I want to talk about how rates can affect payment, affordability, and therefore maximum purchase price.
I have some comparisons on monthly payments when rates change at different sales price below.
I’m only calculating the effect that a 1% increase would make. Most experts will tell you they don’t foresee rates increasing sharply over the next 2-3 years. They will however warn that rates are “trending” upwards. So I believe 1% should be a relevant comparison for 2013 vs. 2014 mortgage rates. Notice how a 1% increase affects your purchase power at different sales price levels. The similar payment of the 300K loan at 4.5% vs. the 350K loan at 3.5% really shows how the rate can affect affordability and reduce purchase power.
The other factor to consider is property value. Equity growth very much depends on the area you are buying in but in Central Texas I would conservatively say a 5% increase year-to-year would be expected over the next few years, and we have seen (and will continue to see) some areas increasing at higher rates. So if you consider the fact that the home will be more expensive and the potential difference in finance rates moving forward, you find the answer as to why the real estate industry is so busy.
Whether you are buying your first home or moving into your next home, affordability plays a large role in this. If you’re on the fence, the indicators suggest that acting now is the right move. The market is tricky right now though, so if you have decided to pull the trigger, be sure to look for experience when choosing professionals to help you. Good luck out there!
Now back to work for me….
Josh Flores is a senior loan officer with Supreme Lending. He attributes his success as a loan officer not to marketing genius but rather to his practice of working with one client at a time. His philosophy is to do the best, most professional job for each of his clients, which has led to his history of repeated client referrals.
Josh believes that education and experience are the two most important assets he can share with each of his clients, whether that client is an experienced investor or a first-time home buyer.
Josh received his Bachelor of Business Administration degree from St. Edward’s University, where he graduated magna cum laude. Josh and his wife have two children, a daughter and a son.