| vtec to vvel |
03-29-2023 11:21 AM |
PSA for potential home buyers:
Just got off the phone with a client. First-time home buyer and nervous about the process, but, like anybody else, heavily reading into the media and having her parents in her ear as to why she shouldn’t buy. Without fail, it’s always the same conversation.
I have her get her parents on the line, and as expected, her dad tried to big-dog me, “Son, I’ve bought a home before and I know exactly how this works! I know you can play around with the rate. Give me the best rate or else we walk!” Turns out he’s bought ONE home back in the 70’s, which a lot has changed since in the industry. I do this daily, and close on average 3 loans/week.
1.Take the media with a grain of salt. The media focuses on news that sells, so bad/negativity/etc. news. The rate should be the least of the worries. If a lender can offer a 0% rate, but there are no homes to buy (which we are experiencing a shortage of housing supply), the rate doesn’t benefit the buyer at all. The rate can also be refinanced when they drop.
2.Buying a home is one of the easiest ways to build wealth. It can also help you get out of bad/toxic debt. I had a client refinance their loan from a 2.25% to a 7.5%. It was a cash-out refinance and the client used the funds to pay off high-interest credit cards/loans/etc. So while their monthly mortgage went up by $600, their total monthly outgoing was dropped by nearly $4K. I had another client do the same thing, but used the funds towards a down payment/closing costs for a 2nd home.
3.There is no “magic” rate. Banks/Lenders don’t set the interest rates. As each bank will have cash/currency on hand, they don’t have a printing press in the back room, but rather get the tangible cash from the same source. Same concept with interest rates.
4.There are discount points available to lower the rate, however, depending on how long you plan on living in that particular home, it may or may not benefit you to pay for points. Average break-even period is anywhere from 7 to 10 years. So it makes no sense to buy down the rate if you are only planning on staying in the home for 5 years and upgrading to another home.
5.“It’s cheaper to rent than buy!” Not necessarily and really depends on your financial situation. When buying a home, there are plenty of tax benefits to where you could net on paying less monthly while also building equity/self net worth. Homestead, mortgage interest write-off, etc.
6.“Rate, rate, rate!” Just because rates are high does not mean it’s a bad time to buy, and just because rates are low does not mean it’s a good time to buy. The rate is the rate, and if you buy while rates are higher, you can always refinance when rates drop. Refinancing when rates drop means you would have still built equity from the time of purchase to refi, versus paying 100% interest while renting. If you buy while rates are higher, the benefits to the buyer:
A. No bidding wars.
B. No submitting 40+ offers to maybe get 1 of them accepted.
C. Less likely of paying over asking price (I had a client once pay $80K over asking/appraised value).
D. More likely the sellers will offer incentives for you to buy their home (I have a seller offering my client a seller concession credit to help with the purchase of discount points).
7.If you decide to shop around, which you should, just make sure to do this in the beginning. While the lenders have no control over rates, the cost of rate (ie discount points) is something the lenders can control. If you wait until the 11th hour to shop and switch lenders, keep in mind the sellers may also be on a timeline (their next home purchase may be contingent on the sale of their current home), and there is a good chance the sellers will not extend the closing date to meet their obligations. This can lead to loss of escrow, lawsuits, etc. if you don’t perform as a buyer per the terms of the contract.
I know this is a long post, but I know there are people out there are are on the fence about buying, so hopefully this can provide some guidance.
Mr. EW, this is my "golden rule" compliance for the year.
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