Panicked Over Rising Interest Rates? How Homebuyers Can Still Get a Great Mortgage: MABA Massachusetts HomeBuyers RealEstate

 This real estate market is unlike anything we have ever seen before. With too few homes for too many buyers, bidding wars are common, driving up prices. Adding to the pressure, mortgage interest rates are continuing to rise at an alarming rate. Rates averaged four point ninety nine percent for thirty year, fixed rate loans in the week ending in August 4, 2022 according to Freddie Mac. For a fifteen year fixed mortgages, the rate isn’t much better with a weekly average of four point twenty six percent.

 This pressure cooker situation has completely changed the rules of financing a home, and savvy borrowers can’t just do things the way they have in the past. To help, we asked lenders to share the new rules for getting a mortgage today, as well as the old rules to ditch. Heed the following advice, and you’ll gain the edge in this ultra-competitive market.

Old rule: Nab the best interest rate without paying points

New rule: Purchase points for a lower rate

 In recent years, when mortgage rates were lingering at historic lows, there was no need to use points to buy down that percentage of interest charged. But now, with interest rates rising, “buying mortgage points is a simple way to lower your mortgage’s interest rate and save money long term. If you have the extra funds at the time of closing, it can be worth it to buy mortgage points,” says Daniel Osman, head of sales at Balance Homes. “This will lower your monthly house payment and save you money long term.”

 Let’s spell out how this works in a little more detail: Points are an upfront fee you pay to get a lower rate over the life of your home loan. Typically, one point lowers your mortgage rate by point twenty five percent and it costs one percent of your loan amount. So if the current interest rate is, say, four percent on a five hundred thousand dollar loan, if you pay one point, or five thousand dollars, upfront, your interest rate will be reduced to three point seventy five percent.

 But does it really save me money, you might be asking? It sure does. Here’s some math for you: If you obtain a mortgage for five hundred thousand dollars on a six hundred thousand dollar home at a four percent lending rate, then pay one percent, or five thousand dollars, to lower your rate to three point seventy five percent, you’ll pay seventy one dollars and fifty cents less per month and save over twenty five thousand dollars over the loan’s life. That’s a wise move, says our math.

Old rule: Get pre-approved before submitting an offer

New rule: Ask for a mortgage commitment instead

 If you are at all familiar with the home buying process, you are probably aware that getting a pre-approval is essential before submitting an offer. After all, a pre-approval tells the seller that a lender believes that you will be eligible for financing once your application has been reviewed by an underwriter. However, to get an edge in today’s market, you may want to ask your lender for a mortgage commitment instead.  “A mortgage commitment is granted by an official underwriter. This means that there will be fewer conditions on the buyer’s financing,” explains Robert Killinger, a senior loan officer with inside sales at Mortgage Network in Boston.

 “It allows the transaction to move more seamlessly and for the seller to receive their money faster.” That said, Killinger warns that getting a mortgage commitment takes a bit longer than simply asking your lender for a pre-approval.  “Borrowers typically need to supply all supporting income and asset documents to the lender. Those documents then have to be reviewed and signed off on by a member of the underwriting team.” In other words, if you’re going this route, you need to plan in advance.

Old rule: Target homes at prices you can afford

New rule: Target homes at prices below your top budget

 In the past, buyers were able to let list prices reflect how much they would probably pay for a property. However, these days, inventory is so limited that prices are rising quickly. Buyers are offering well over the listing figure in order to win. In this environment, it’s incredibly easy to spend more than you can afford on a home. To avoid getting in over your head, work closely with a mortgage lender (or broker) well before you start making offers. According to Nicole Rueth, senior vice president and producing branch manager of the Rueth Team with Fairway Mortgage in Englewood, CO, you should collaborate with your lender to set a budget as you seek pre-approval.

“Buyers should have very honest conversations with their lender about what they can and cannot afford,” she advises. “They should make sure to factor in that they will most likely have to offer above each property’s list price. Then, once they have a better idea of what they can realistically afford and they know their limits, they’ll be ready to make a strong offer when they find the house they want.”

 Jerry Koors, president of Merchants Mortgage, a division of Merchants Bank of Indiana in Carmel, cautions that buyers today will also need to factor rising interest rates into their budget. “Lenders should be able to estimate what their clients can afford by interest rate,” he says. “Sharing that information will ensure that borrowers know what to expect if rates continue to rise and how an increase will affect their buying power.” Put simply, no matter what your budget ends up being, the more information you can gather before entering this crazy market, the better.

Old rule: Don’t bother with down payment assistance

New rule: Take all the help you can get

 Traditionally, down payment assistance programs were meant to help first-time homebuyers and those with lower incomes access homeownership. Many of these programs still have requirements that must be met in order to receive the funds. Given how tight and tough the housing market currently is, you may want to investigate whether or not you qualify. “Buying a home is a huge financial undertaking, especially in competitive markets like the one we’re experiencing,” says Sean Grzebin, head of consumer originations with Chase Home Lending in Jacksonville, FL.

 “Buyers who are having trouble coming up with the cash for their down payment and closing costs should ask their lender about available down payment assistance programs. Often, these programs can help cover those costs by providing grants or other forms of financial assistance.” Bottom line: It never hurts to ask! With home prices going through the roof, every little bit of assistance helps.

Old rule: All loan programs are created equal

New rule: If possible, choose conventional financing

 Offers with financing used to be viewed as all pretty much the same. It didn’t matter whether you were using a Federal Housing Administration loan, a Veterans Affairs loan, or a conventional loan to buy the property. In each case, you had roughly the same amount of bargaining power as everyone else who needed a mortgage. These days, however, the game has changed. Sellers are definitely revealing their preferences. According to Rick Robertson, a certified mortgage planning specialist with Axia Home Loans in Bellevue, WA, buyers should opt for conventional financing whenever possible in order to give themselves a leg up in this tough market.

 “If there are multiple offers, conventional financing usually wins,” he says. “Conventional financing typically offers more flexibility and latitude than FHA and VA loan programs. For example, satisfying the appraisal requirements on a government-backed loan can be more challenging than a conventional financing appraisal. Certain types of properties, particularly condominiums, may also impose additional financing requirements if an FHA or VA loan is involved.” Unfortunately, bidding wars are more common than not these days. In order to put yourself in the best possible bargaining position, you’ll need to make things as easy as possible for the seller. While a conventional loan program may not be an option for every buyer, if one is available to you, you should consider that first.

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First Time Home Buying in Massachusetts

MABA Buyer Agents help first time home buyers reduce the stress and frustration normally associated with buying a home or condo – especially for first time home buyers.

As a first time homebuyer in Massachusetts, you can turn to our non-profit organization to help you understand and navigate the complexities of the entire Massachusetts real estate transaction, from mortgage pre-approval until you are handed the keys to your new home or condominium. Each of our member buyer's brokers and agents works only for their buyer-clients and never for the seller of the home or condo that their buyers want to buy.

MABA Buyer Agents will take the time to learn about you and your real estate goals, help you understand your options, including first time home buyer programs, properties and/or condominium associations, estimate real property values and put together a negotiating strategy to help you increase the odds of getting your offer accepted in our competitive Massachusetts real estate market. After advocating to get your offer accepted, your MABA buyer's agent will be there for you at your home inspection and help you protect your deposit through the inspection, purchase & sale and financing contingency periods.

You can buy your first home or condo with confidence knowing that your MABA buyer agent is committed to saving you time and money and helping you make your best home buying decision.