Rising rates and your Bend Home buying power
Thom’s Real World story of how rapidly rising interest rates just squeezed him out of buying the Bend home he had chosen to purchase.
You might think that mortgage rates are still so low, hovering today right around 4%, that it’s really not a big deal that they have been rising quickly on the back of Ben Bernanke’s testimony on Capitol Hill this week. Uncle Ben mentioned that the Fed might start tailoring back MBS purchases during its next few meetings, and that sent mortgage rates up .09 basis points in one day, one of the largest one day increases on record. But here’s a real story, my story, as to why it is a nasty development if you are trying to get the most Bend home you can for your money (and who isn’t?).
I was called into my mortgage broker’s office on Thursday, which was great timing, as we had just sold the second Bend home we had to sell, and were ready to make an offer, THAT DAY, on a house we had been watching for weeks. The real estate market in Bend is excruciatingly hot, so I wanted to move fast.
His demeanor was sober as we walked in. I had just paid off a $16,000 credit card balance to allow us to get this home, and was raring to go. We sat down and he said, “I can’t qualify you guys for the mortgage.”
My smile fell right off. “But we talked about this a few days ago, and you said we could move ahead once we got this debt paid off.”
“Yes,” he said, “that was true a few days ago. But rates just spike today. I had you at a 44.5% DTI (debt to income ratio, which takes into account your mortgage payment and all other dent payments versus your monthly NET income- banks don’t want to loan if you are over 45%) a few days ago, but mortgage rates have moved so much, you’re now at a 45.4% DTI. So I can’t qualify you for the loan.”
Needless to say, I was not and am not pleased. It’s not his fault, of course, he’s just the messenger. But this illustrates the fragility of buying power due to rapidly moving mortgage rates in real estate markets everywhere, not just good ol’ Bend Oregon mortgage rates. If your DTI is close, you can literally be completely taken out of a price range you THOUGHT you were in just a day or two before. He said he had to make calls to several borrowers explaining the same thing to them.
Mortgage rates are really, really important. Often I tell my clients to worry less about the price of the Bend home they are trying to purchase and squeezing every last dollar out of negotiations when it is the mortgage rate that is much more important. Spend some time with your mortgage broker, ask them about how you can lower your rate with the Yield Spread (by buying down the rate for cash) if you plan to be in it a long time, or how you can take a higher rate and get cash back towards closing costs by “selling” a higher rate to the lender. Note that banks often will not give you this option, you need to talk to a mortgage broker to get the best deal.
And what am I doing? I am waiting for mortgage rates to drop, hoping that the large, knee jerk reaction of the last week will settle a little, and secondly, waiting for the new credit report of mine to come out hoping that my 720 score will improve to over a 740, which will instantly drop our rate by 1/8 of a point, and maybe, just maybe get us in the door of our chosen Bend home.
Fingers crossed that the Bend real estate market waits for us!