Already in 2018, we have seen a 1/2 point increase in interest rates. To give you an idea what that means in “qualification amount”. If a $500,000 dollar qualified home buyer experiences a 1/2 increase (.5) in interest rate they will only qualify for $450,000. A 1% or (1.0) increase in interest rate will drop the half a million dollar qualified home buyer to $400k.
Let’s talk about the economic aspect of home prices dropping with a rise in interest rates. If you google interest rates rising in 2018, you will find a lot of sources, some hack and some good, who will say we are going to experience another 1/2 point interest rate increase before 2018 is over.
The FED is meeting at the end of July, beginning of August, if the economy stays robust, employment stays low, inventory remains low and if there is still a high demand for Santa Clarita real estate, home prices aren’t going to reduce with an additional .5 of a point increase in interest rate.
Buyers are not happy with any increase in interest rate. Home sellers that are selling to purchase aren’t either.
However, rising interest rates reflect an economy that is getting stronger.
Interest rates fluctuate often, Official reductions and increases happen during the meeting of the FED.
To lock or not to lock
Getting your rate Locked will be key. That “lock” depends on your lender and how brave they are when gambling with your money.
When we have a client that enters escrow, usual home mortgage lenders will “lock their rate”. It is a done deal. The rate which the client was locked at is the rate they will get. If rates go lower, the lender makes a better profit. If rates go higher, the home buyer got a better deal.
Some real estate lenders don’t lock right away. They do this because they are hoping that interest rates go lower than what they promised their home loan client. If it works out, they give the borrower the rate they were promised and lock them at the reduced rate they gambled for and won.
Of course, in most lender circles, this gambling is not the rule but the exception. When it goes bad, buyers cancel the transaction when they find out what their interest rate is and how that is different than what they were promised.
We have our clients protect themselves from all parties in the transaction by sending email recaps of verbal conversations.
Example – “Hey Tom, thanks for calling Clariece and me today. Connor spoke very highly of you and your mortgage prowess. I wanted to make sure I understood you when you said you would get me a 4.0% interest rate with zero fees. I also wanted to verify you said you would pay for the appraisal out of your own pocket. Please let me know if I understood. I’m looking forward to working with you.”
Simple email’s like this one following a verbal discussion is important. Without it, all you have is he said she said. And with a mediator or in court, proving such statements were made are difficult.
You may be one that loves texting and thinks that is an easier way to follow up on a verbal discussion you have with your Realtor or Lender.
Stick with email. Someone could be texting on another’s behalf. There are passwords and IP addresses that are more easy to locate if the email is brought into question.
I’m Connor MacIvor, local Santa Clarita – Valencia CA Realtor. I’d love to work with you when you are ready to buy or sell real estate. Please let me know and spread the word. – thank you!