How Interest Rates Impact Affordability

The Federal Reserve has been on a mission to dampen rising inflation by increasing borrowing interest rates. These increases are impacting borrower's affordability in their mortgage loans. The impact for each buyer will depend on their interest rate, home price, and down payment. However, all buyers in every price point will be under pressure with climbing rates and economic uncertainty. Click here for current mortgage loan rates for a 30-year fixed loan. Higher interest rates equate to two things: 1) higher mortgage payment 2) less buying powerThe image below illustrates how even a minor quarter percentage point can increase the monthly mortgage payment by $70-75 (for a $500,000 30-year fixed loan). The quarter percentage increase may not seem like much incrementally, but you can see the big difference when it's a full percentage point (nearly $300 more per month). Keep in mind the interest rates don't include the taxes and insurance and the actual obligation will be higher.   That $300 a month could be anything to you: the ability to buy a larger or higher priced home in a neighborhood you want, daycare expenses, retirement savings, or rainy day funding. To see the effects even further, let's look back at 2020 when interest rates were at their lowest. The chart below details the impact of rising mortgage rates on 30-yr mortgage payments with both a 10% and 20% down payment (excluding taxes and insurance). graph courtesy of realtor.com   If you've been thinking about waiting to see if the market cools off, the increase in interest rates may very well off-set any savings you would see in purchase price. We recommend reaching out to an experienced and local lender to discuss your best options. Call us at (208) 870-8292 or email at info@lysibishop.com to get connected with a real estate professional to get started.  

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Buyers - Do You Know About Rate Buydowns?

  There’s no doubt that buyers have a little more say in the real estate market today than they did just even a few months ago. Increasing inventory levels and longer days on market are giving buyers options and time to make purchasing decisions, and sellers are more willing to give concessions to make their home more competitive.    So why aren’t buyers out there scooping up all the available inventory? Higher mortgage interest rates are impacting affordability on top of already record-breaking prices for many would-be buyers and consequently cooling off demand in today’s market. Rates reached a 13-year high in July at 5.8%. To give perspective, they were at 2.87% the same time last year. Luckily, rates took a dip this week to below 5% for the first time since April 2022. This change is a welcome one to buyers who were possibly priced out of purchasing or disqualified from obtaining a loan due to escalating interest rates. With the Federal Government actively increasing their benchmark rates to combat inflation, we may just see them on the rise again. Because of this, buyers need to know other options that can help them obtain their goal of homeownership.   Enter the Rate Buydown.    What it is: A rate buydown is a mortgage financing technique to help buyers qualify for a mortgage loan and receive a reduced interest rate for a lower monthly payment by making a lump sum payment up front. The lower rates are typically effective for the first couple years of the mortgage loan life, and then increase to the standard rate over time. Some are effective for the entire life of the mortgage loan. Different lenders approach rate buydowns differently and may not offer them to everyone. It’s important to shop lenders to obtain the best rate and best program that works for you.   How it works: A buyer can decide to conduct a rate buydown on their own, but we've seen sellers pitch in on them as a concession instead of agreeing to a price reduction. During negotiations of a property sale, sellers can agree to essentially subsidize a portion of the purchase price on behalf of the buyer by buying a discount or points on the mortgage loan via a lump sum payment. That payment to buy mortgage points reduces the interest rate and leads to a lower monthly payment for the borrower.    The cost of mortgage points is based on the size of the loan, with one point representing 1% of the mortgage. For example on a $800k mortgage loan, one point would equal $8,000, two points would equal $16,000, and a half point would equal $4,000. In the chart below, you can see how increasing the points creates significant cost savings in the monthly payment and over the course of the loan compared to a reduction in the purchase price.     Who it Benefits: This technique can be impactful for borrowers who would need the extra savings in order for a home purchase to make financial sense at that point in their life. Some borrowers may anticipate increases in their income over the years, so a rate buydown can be an opportunity to make a purchase now, and be able to keep up with the increased payments later on.   The Pros of a Rate Buydown: Temporary or permanent reduction in monthly payments Ability to obtain a mortgage loan Helps offset the cost of increasing mortgage rates and housing prices   The Cons of a Rate Buydown: Initial upfront cost may not be doable for some borrowers If income doesn’t increase to match the higher interest rate (or a 3-2-1 or 2-1 structure), the borrower may not be able to make the monthly payments   We recommend reaching out to your favorite lender(s) to learn what a rate buydown can look like for you.          Data provided by Synergy One Lending Monica Davis, Branch Manager NMLS: 92376 Phone: (208) 863-5985 Email: monicadavisteam@s1l.com 

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The Pros and Cons of Buying a Home in Boise Right Now

The tides of change are bringing favorable conditions for buyers in Boise real estate. After a whirlwind of price appreciation and stiff competition over the past few years, buyers are rejoicing in a sea of inventory and daily price reductions. One thing is raining on this buying parade, increasing mortgage rates. Mortgage loans are 40-50% more expensive than they were just a year ago. This is affecting the eligibility for some would-be borrowers and affordability for those who still meet their lender requirements. So, is now a good time to buy a home? We consulted with two of our Buyer Specialists, Allan Brock and Sarah Kaisler Berg on their insights to the pros and cons of buying a home now.  “Buyers have more homes to choose from, which makes sellers more willing to negotiate, and ultimately creates a fairer, more balanced transaction for both parties. We’re seeing contingent offers accepted, prices or terms negotiated, even closing costs or interest rate buy down incentives from sellers if homes have been on market too long.” - Sarah Kaisler Berg, Realtor®   The Pros: Better and more options to select from More time to make a buying decision Sellers are more willing to negotiate Less competition as buyers leave the market Daily price reductions Real estate may be the safest option to hedge inflation for investors, and is a reliable long-term investment Start building equity sooner rather than later   The Cons: Increasing mortgage rates Home values are still high compared to where they were a year ago Competition is still high for homes priced right and in high-demand neighborhoods   First-time home buyers have a lot at stake in this changing market as they race to meet their window of opportunity while rates are low and before home prices keep appreciating further. Buying now can help current renters start building equity, essentially paying themselves rather than a landlord. Realtor® Allan Brock recommends you consider these 3 things before moving forward on purchasing a home: Can you afford the down payment + closing costs and still have additional savings beyond the cash needed to close the purchase?                                      Can you afford the monthly house payment and not go broke doing so?    Will you still have money left over each month to put toward other financial goals?  The shift to a more normal real estate market is giving hope to many tired buyers who missed out on homes during the frenzy. Even then, when most homes were receiving multiple offers, Sarah Kaisler Berg explains “we were very successful in securing the right home for buyers. As long as you are clear on your essential ‘needs,’ and willing to be flexible with your ‘wants,’ you’d be surprised at the gem you may find.” Now buyers can rejoice in taking back a little bit of power in their wants/needs list.  If you’re on the fence about purchasing a home and would like personalized guidance to your unique situation, we’re here to help. Our team of knowledgeable and experienced Realtors® are here 7 days a week and have helped hundreds of families find their perfect home. Each of our Buyer Specialists provide value to our clients and specialize in many areas, and we’re confident in matching you with the right agent to make home buying an extraordinary and stress-free experience. Contact us today to get started. Photo: Roselyn Tirado, Unsplash

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