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Date the Rate, Marry the House

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Paul George,

There’s an age-old adage in the lending and real estate industry. Because interest rates have been so low, we haven’t heard this one for a while but the saying “date the rate, marry the house” is back in the mortgage language again. Even with housing shortages in our area, we seem to be in a pause from the frenzy of the last 18 months in the housing market.  Reasons are many, but the number one reason is the fast, sudden rise of interest rates. Rates got as low as 2.75% on a 30-year fixed rate, but are currently in the 7% range.  While 7% on a 30-year fixed rate is a little below average historically, they have not been this high for over 20 years.

I have a client who has been looking for the right house for over a year.  Through no fault of their own, we have been losing out on homes because they were in multiple offer situations, and they lost out.  When they started looking, rates were about 4%.  A $350,000 house with a 20% down payment made for a principal and interest payment of about $1336.  That same priced house is about a $1863 at the current 7% rate.  By waiting over a year, their payment has gone up over $500 per month.  Also, home prices have appreciated almost 20% so a double whammy is in play. The payment is much higher and the home prices are much higher.  So, you see the dilemma.

How can a buyer combat this?

Date the rate, marry the house! Interest rates are temporary.  Your home is not temporary.  The important thing is that if you find a house you love, don’t wait.  It will be more expensive next year.  But how can you get past the much higher payment?

Here are some of the ways to combat the higher rates and get payments to where you can afford them.  Every situation is different. Here are some tools you may have available but remember, every situation is different and they may or may not work in every situation.

Two one buy-downs.  These are temporary buy-downs that make the interest rate 2% lower the first year and 1% lower the second year returning to the note rate for years three through 30.  For example, the note rate is 7.25% but the rate the first year is 5.25%, the second year is 6.25%, and years three through 30 is 7.25%.  There are also 3/1 arms and 5/1 arms where the rates adjust after three years (3/1 arm).  The first three years are lower than the current rate.  One other option is to buy down your interest rate by paying points (basically prepaying interest). It is also legal to let a seller credit a buyer’s cost to get their rate lowered.  An example of this is a seller’s house is listed for $500,000 and the buyer is only qualified for $485,000.  The seller can credit the Buyer $15,000 to buy down the interest rate to where they can qualify for the payment.

“Date The Rate”

So, you have locked in at 7% for 30 years. Economists and most lenders are predicting lower rates next year so “date the rate” and refinance when the rates come down. Many of you are sitting on the fence.  I hear it all the time, “why would I give up my interest rate of 3% and trade it for a 7% rate on a more expensive house? If the perfect house does become available, you need to find a way to get it now.  The housing shortage is real and because of the projected growth in Columbus, we will be in a shortage for many many years.  Prices will only keep rising so don’t wait.  Your new rate is temporary, your house is for the long run.  As always, call me to discuss your unique situation to see what makes sense for you.

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