INTEREST RATES ARE UP
As most of us are aware, the long-predicted increase in mortgage rates seems to have arrived. After the summer’s market adventures pushed rates back near their all-time low, the events of the fall have pushed them back in the opposite direction – and quickly. The presidential election, and the subsequent rate increase by the Federal Reserve, have had combined to have a significant impact on financial markets and mortgage rates. The result has been one of the most abrupt rate increases that we have seen in quite a while.
THE IMPACT ON YOU
This biggest impact of this rapid change is there could potentially be buyers actively shopping with pre-approvals based on a rate that is no longer realistic. With most pre-approval letters written good for 90 days, there is a very real possibility that some buyers will now be holding pre-approvals for which they no longer qualify. For example, a buyer that got pre-approved in early November, could have been approved with an interest rate of 3.625% or lower. With conventional rates now around 4.25%, would result in a payment increase of about $70/mo. (on a $200,000 purchase). Depending on how tight the debt ratios were in that pre-approval, that payment increase could be the difference between an approval and a denial.
A FEW IDEAS
My recommendation is, if you have buyers presenting a pre-approval that was issued before Thanksgiving, you may want to consider having them follow up with their lender, to make sure that those numbers still check out. The majority of buyers will likely be fine. A savvy loan officer will usually build in a little cushion, when writing that pre-approval. However, there are always some buyers who want to know the absolute max that they could possibly qualify for, and those types could find themselves in trouble when they realize how much rates have changed.
In the event that this type of situation arises – a previously approved buyer, finds that they no longer qualify due to the changing environment – there are still options available. Whether it’s re-examining their existing debts to see if there are payments that could be eliminated/consolidated, or possibly moving the buyer into a different loan product or program, there could still be possibilities for getting that transaction done. It might take a little creativity, but it doesn’t necessarily mean the deal is sunk.
HERE TO HELP
If you have questions on a pre-approval, interest rates, or loan options for a client – or even just for your own future reference – please feel free to check in with me. I’m happy to be a resource for you and help ensure that all your deals arrive safely at the closing table.