Talking To Your Lender

When beginning the process of purchasing a home, one of the first steps to take is to get in touch with a lender. Lenders can provide a great deal of information that is very important in the home buying process. They can work with you before you begin your search to make sure you are not out of your price range. There are many different loan programs, each with its own set of rules, ratios, rates, and requirements, and a lender can help see which one works best for you.

When you initially speak with a lender, they are going to ask some financial questions about your savings, income, debts, and expenses to try to get an idea of your current financial situation. Based on that conversation, they will use the numbers you gave them to decide on a loan program that will work for you. These programs are usually either a conventional loan, FHA, VA, or USDA. Among the differences, each program has different requirements for a debt to income ratio and different mortgage insurance options if you have less than 20% to put down.

Some people think they will need to put 20% down on their purchase, but that is simply not the case. There are conventional programs that start as low as 3% down, and USDA financing in rural locations where you can finance 100% of the purchase price! The USDA Website is a great resource for seeing what locations are USDA eligible (more than you would probably think), as well as income maximums to qualify for the program.

After this initial discussion, the lender will give you a pre-qualification that you will use to submit with your offers. With the real estate market being as hot as it is right now, that is why it is important to have this item completed before seeing a home. When there is a lot of competition, there may not be time between viewing the property and that property going under contract to have the conversation with the lender. And in a multiple offer situation, a seller is most likely not going to consider an offer that does not include a pre-qualification.

One thing that buyers have been doing is to get the lender to also go ahead with a pre-approval. A pre-approval is different than a pre-qualification in that it goes beyond just an initial conversation. A pre-approval takes about 24 - 48 hours, but during that process the lender will review your financial documentation to verify it is all turn and correct, and will perform initial underwriting. Pre-approvals provide an advantage in that sellers know that there is a much better chance of the loan not falling through since all the documentation has been reviewed.

One thing to remember is that even though you have these conversations with one lender, you are not bound to use that lender. I always recommend shopping around rates and fees associated with the mortgage, but that can wait until after you have already gotten your new property under contract.

If you have any questions on where to get started, I have a number of great lenders that I work with who can help determine what will work, where you will fit, and get you on your way to home ownership. Do not hesitate to reach out with any questions.

Interest Rates and Affordability

As a Realtor®, we always hear people talk about what "price range" they are looking in. Obviously sellers will care what they will receive for selling dollar-wise, but our buyers should be more concerned with a monthly payment, which is a function of down payment, term (in years), and interest rate. From a buyer's perspective, until they have talked to a lender, the price range is ultimately irrelevant.

During the pre-qualification or pre-approval process with a lender, it is important for a potential buyer to be honest about what they have to put down, their current economic situation, and what they are comfortable with paying on a monthly basis for the next 15 to 30 years. Just because a buyer is pre-approved for $450,000 does not mean that they accompanying mortgage, taxes, and insurance are a figure they are comfortable with committing on a monthly basis.

Mortgage Rates and Fed Interest Rates

While mortgage rates are not directly tied to the federal reserve interest rates, they do tend to move somewhat close to tandem. Interest rates on mortgages are currently still at historically low levels and it is a great time to lock in a mortgage at one of these low rates.

Mortgage Rates and Home Prices

Some speculate that an increase in mortgage rates will decrease home prices since it will decrease the amount of home some buyers can afford. According to CNBC, increase in interest rates may not decrease prices, but increase due to the other economic indicators that are tied to an increased rate, such as widespread perception of the economy.

Mortgage Rates and Affordability

So back to the initial discussion of monthly payment, as a function of down payment, terms, and interest rate. If we look at the typical 30 year mortgage, with 20% down. If we keep the monthly payment the same and adjust the rate from 4% to 5% APR, how much is our purchasing power decreased?

The answer may be surprising, it was to me.

It is actually OVER 11%!!!

This just means today is a great time to buy. Whether you are a first time buyer, moving up, or moving down, doing so now and locking in a great rate is a very smart move. If you have any questions on the buying or selling process, please do not hesitate to reach out to me. I am always here to help.

Rising Interest Rates and What They Do to Your Budget

This is an analysis that I did for one of my clients who are looking to build. I wanted to help them understand the possible outcome of building and not having final financing in place for another 12-15 months from now, and what it would mean for their budget and monthly mortgage payment. I felt it was prudent to share this, as it applies not only to those who are thinking of building, but also those who are thinking of waiting to purchase.

While we can't predict what will happen with rates, what you can afford now may decrease in the future if rates go up, as they are predicted to. Even though inventory is low and prices are up, the current interest rate environment makes it advantageous to either purchase your first home, move up to something larger to fit your families needs, or even to downsize if your nest is now empty.

If you have questions on whether or not you can qualify for a mortgage, or what you can qualify for, I have a few great lending partners that I can direct you to who would be more than happy to go over your individual situation and see what can work for you.

"If you consider a total budget for lot purchase and building of approximately $600,000 and look out to 12-15 months when the project would be completed, from what we have talked about, this seems like what you were looking at for a total budget.

For arguments sake, if we make a comparison of where rates are now and where they could potentially be and consider a current rate of 4.25% and a future rate of 5.5%.

At a total price of $600,000, if you consider 20% down payment, we would be looking at $120,000 down and $480,000 in mortgage balance 12-15 months from now. At an interest rate of 5.5%, this would result in a monthly mortgage payment of $2,725.39 per month.  On top of this would be the closing costs associated with the land purchase, costs of the construction loan, and costs of refinancing once the project is complete. Also, you would have a year's worth of rent payments, which would probably be somewhere between $1,500-2,500 (rental inventory is tight right now as well, there is only one rental available in clover schools and eight available in Fort Mill). 

If we look at a purchase price of $700,000 at today's rates of 4.25% at the same 20% down, which would be $140,000 down and $560,000 in mortgage balance. This results in a monthly mortgage payment of $2,754.86 per month. So it would be about $30 a month more, and $20,000 more down payment, but it would save $18,000-30,000 in rent payments as well as the cost of financing of the construction loan and all the additional closing costs. And spare you from having to pick up and move an additional time.

Obviously we can't predict where rates are going to be a year from now, but just something to consider when making your decision. I thought it was a very intriguing discussion and definitely thought the information was worth passing on to you guys. It really comes down to what you would qualify for and, beyond that, what you are comfortable with having for a monthly payment (you certainly don't need to stretch your budget if you don't want to)."