Rising Interest Rate and New Builds

Rising Interest Rate and New Builds

Published | Written by Brandon Holley

Disclosure: Transcribed from video. The wording may be off. 

Historically low-interest rates are no more. The fed plans to continue to raise rates through the summer, so what do you do if you're looking at new construction, you qualified for this rate, and the ratios were in; however, the rates are going up, and you might not qualify and be able to
close on your home. I've had a few clients going through the same thing, and here are the tips that I give them, guiding them to make sure that we get to close them at home six months from now. Stay tuned

What's going on, everyone? I am Brandon Holley with Holley Homes Realty here in Austin, Texas. Today, I'm bringing you some really important information about interest rates and how that will affect you.

It'll affect you if you purchase new construction, but a new building is being pushed six to eight months out for build times. I'm finding that many of my clients were approved and ready to purchase the home back in January. Now, suddenly, the interest rates are turning up, and the lender is coming back and telling them oh, we're not in the right ratios, we're not going to be able to close on the home. This is an extreme heartbreak for you as the buyer and for us as the real estate agents. We want to see you in that home. We want to help you out, so here are a few tips that you can use to leverage yourself to still close on that home.

First, let's figure out and understand why these rising interest rates will change your monthly mortgage and affect you, right? You locked the rate when it was at a historic low back in January; however, closing is not until after July, and you can't close until 30 days before closing. So let's look at this example right here to get a better idea of how that will affect your monthly mortgage. You are approved for a $500,000 home at a 3.11 interest rate that would have given your monthly mortgage payment to be $2,138. However, interest rates have risen, and you get locked in at 4.67. So now your monthly mortgage payment is $2,584, which unfortunately will put a lot of people out of the correct ratio to be able to close on that home.

Suppose you've taken out a mortgage before. You know it's made up of four things: principal, interest, taxes, and insurance, and out of those four things, principal and interest make up a huge part of that monthly payment. If you're looking at an amortization scale which is extremely hard work for me to say, you'll notice that out of those two payments. You're paying more towards interest each month than you are the principal. The lender wants to make their money back before you start building equity on that home, so as you can see, the interest rate is an extremely important part of your mortgage payment if you are looking at new construction. You cannot lock in your rate yet. What are some things you can do to be proactive? What are the questions you need to ask the lender to ensure that when the closing date comes, you still fall in between your debt-to-income ratio and can close? Here are those tips, all right. Remember to always speak to a mortgage professional to ensure that you're doing what's best for you. 

Still, my first tip would be to talk to the lender beforehand. Even though you're six months out before closing, see if they can lock that radar right in, see how much that would cost if that preferred lender cannot lock the rate, talk to another lender and see if they're able to.
There are lenders out there that can lock six months out, and if that's the case, it is well worth missing out on that seven thousand dollar incentive for closing costs to ensure that you save what could be a hundred and fifty thousand dollars on the life of the loan. Another option is to buy down points, which allows a borrower to obtain a lower interest rate by buying discount points. Let's take a look at how this works, for example, a mortgage lender may offer a purchaser the ability to reduce their interest rate by 0.25 percent in exchange for a point, so if the purchaser is obtaining a mortgage from 400 thousand dollars and is offered an interest rate of four percent paying four thousand dollars would lower that interest rate to three point seven five percent, all right, so this last option is why it is so important to have a real estate agent on your side in any real estate transaction that you're a part of, and that's because as a realtor, you can give a bit of your commission to the buyer to make sure it closes, whether that's to help with closing costs or if that's to help to buy down points whatever it is obvious we are there to help you get to the finish line and whatever it takes I personally i i don't know about all real estate agents, but I'm happy to do that for my clients, and if it's the difference between closing and not closing and I will guarantee you that most agents will do that interest rates are expected to continue to rise through July so what does that mean for you what does that look like historically kind of where do rates now match up with where they were in the past? Let's look at a graph showing what interest rates were over the past 50 years.

Here you can see historically, since 1975, interest rates had remained around eight percent, with the highest being back in 1981 when it was 18.63, and the lowest being January of 2021 when it was 2.65. However, looking back to 1981, the median home price was around $80,000, so it changed how we look at affordability. I don't know how to help you with that other than I will continue to push new construction because I think it's a great way for clients and buyers to get into a house in this market. I hope this gives you some information on what to expect in the coming months with interest rates. It's going to be difficult. It's going to price a lot of people out of the market, but I don't want it to be you. If you are six months out from closing, talk to your lender, talk to your real estate agent, and make sure that you have an option moving forward to ensure that you're going to close on your property. As I said, there are ways around it. You might need that closing cost the preferred lender of the builder gives you, but there are other ways around it again, talk to the people that know what they're doing, get a second quote get a second opinion, and please, good luck and if you have any questions, please reach out to me.
Thank you again for watching, and if you have questions, drop a comment below. Please hit like and subscribe, and if you're interested in new construction, check out my new community guide below.

*Disclaimer - All neighborhoods are different. Please speak to an agent to get all the facts straight. Also, equity is not guaranteed and fluctuates with the real estate market.

If you have questions about new construction, please reach out to me. The builder pays the commission, and it is my job to be knowledgeable about these communities. 

Brandon Holley

Broker - Holley Homes Realty 

Phone - 512.487.9242

Email - brandon@holleyhomesrealty.com

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