If You're Worried About Being Priced Out of the Market, Read This!

Hello Hampton Roads,
 
A question I get asked about a lot these days is about housing affordability as it relates to higher interest rates. In January 12th the 30 year fixed rate mortgage was in the 3.58% and on May 9th, the national average is 5.56% -- representing about a 20% decline in a buying power. As rates continue to rise, buyers get priced out of the market. If you're worried this could happen to you, there are options that may help!

Mortgage Rates



One of the options I previously wrote about is the use of the adjustable rate mortgages (ARMS) which are offered for different fixed peiods of time like 5 years, 7 years, or even 10 years. The ARMS offer a low rate for a specified period of time and then reset every year thereafter.   

This is something for buyers to discuss with their lenders to see if it makes sense. For example if you can't afford the 30 year fixed rate option and you know ou will definitely be out of the house within 5 years then the 5/1 arm may make sense.  Check out this article showing the current rates for the 30 year fixed, 15 year fixed and 5/1 arm. Going with the lower interest rate if it makes sense for you, could allow you to afford more house and keep you payments lower than it would with the current 30 year fixed rate.

Below is a table showing the historical rates of the 30 year fixed, 15year  fixed  and 5/1 ARM mortgages.
Mortgage rate history

Another option to consider is an assumable mortgage.  About 25% of mortgages today are assumable and are primarily for government backed loans like VA or FHA.  Conventional loans are generally not assumable; but to confirm you can ask the owner or the owner's agent.  An assumable mortgage allows the buyer to assume the seller's currenet loan and rate. If the seller has a lower rate, this can be an attractive option. 

A couple of things to consider:
  • The buyer still has to qualify for the loan: an assumed loan is not "automatic"
  • As home prices have appreciated the purchase price will usually be more than the balance of the assumable mortgage so a buyer must be in a position to cover the difference in cash or get another loan. And, if getting another loan, the blended rate would have to be reviewed to see it if makes sense to do this or if a 30 year fixed rate would be cheaper.

These  are just 2 options that should give you some food for thought!
If you have any questions or would like to talk about your specific situation, feel free to schedule a no obligation phone call to talk about your real estate plans.  https://calendly.com/liz-schuyler



Thanks for Reading,






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Serving your Hampton Roads andVirginia Beach Real Estate needs. Liz Schuyler on Google+


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