The 2022 home buying season hasn’t officially started yet, but all indications are that things could get interesting. Higher inflation has sparked higher interest rates, home values are soaring, and home inventory is still low.
Rates rise above 4 percent
Just last week, mortgage interest rates topped 4 percent for the first time since May 2019. Many industry experts are projecting that rates will likely keep moving north as we progress through 2022.
By now, many of your prospects have heard about the rate hike. And although they were planning to relocate this year, the news may have caused some nervousness and apprehension.
Although rates are currently above 4 percent, they are still low by historical standards. And, there are ways your clients can get their rate reduced – even if it’s just a quarter percent.
Now is the time for you to swoop in and provide counsel and encouragement for your clients still interested in buying a home this year.
Here are some reminders you can pass along to them to help them see the benefits of buying now – or at least this year – instead of waiting for rates to start falling again.
Start improving credit scores
Just because the average mortgage rate is above 4.0 percent doesn’t mean your client’s final rate will be that high. If they are concerned about borrowing at a rate above 4.0, they can do some work now to avoid it.
One of the most critical factors in determining the interest rate is a credit score. The good news is that’s something your clients can control. The best deals usually go to borrowers with credit scores of 740 or higher. So that’s the target they should shoot for.
While they are waiting to see if rates will stabilize, they can improve their credit by paying off bills, making payments on time, and considering other strategies outlined in this blog.
Consider paying points to lower rates
Some buyers can get their mortgage loan rate lowered by doing something called “buying down the rate.” Sometimes, it’s called paying mortgage points.
Mortgage points are the fees a borrower will pay a mortgage lender to lower the interest rate on the loan. Each point your client pays costs 1 percent of the mortgage amount. For example, one point on a $300,000 mortgage would cost them $3,000.
Points can increase their closing costs by thousands of dollars, but the considerable upfront cost might be worth it if they stay in the home long enough to see savings from the reduced interest rate. Paying that extra $3,000 at closing could result in tens of thousands of dollars in savings throughout the mortgage.
Points can also get your client a lower monthly payment. If a monthly mortgage payment may put too much strain on your client’s budget, mortgage points could be an excellent way to go because a lower interest rate equals lower monthly payments.
Don’t outsmart yourself
Paying attention to interest rates, home price fluctuations, and other market trends is smart for your clients looking for the right time to buy (or sell). But sometimes, it can cause undue emotional stress and frustration.
In reality, there probably isn’t ever a perfect time to buy or sell a home. There will always be pros and cons to entering the process, and if they wait for that “pie-in-the-sky” mix of conditions, they could miss out on a great deal.
Your job is to ensure they see the advantages of buying and the silver lining, despite factors that could scare them away. For example, even though the rates have increased, they are still historically low and affordable.
Your buyers and sellers don’t need to predict the best time to sell or buy. The most important thing you can tell your clients is that there is no way to predict the future, so buying or selling when they feel ready is the best thing they can do.
Yost, M. (2018, July 24). Rising interest rates worrying your clients? tell them this. Inman. Retrieved February 15, 2022, from https://www.inman.com/2018/07/25/rising-interest-rates-worrying-your-clients-tell-them-these-5-things/
*, N. (n.d.). Helping your clients cope with rising interest rates. Homes.com. Retrieved February 15, 2022, from https://marketing.homes.com/helping-your-clients-cope-with-rising-interest-rates/
Chesney, C. (2021, December 3). What to know about a rising rate environment. Rocket Professional. Retrieved February 15, 2022, from https://www.rocketproinsight.com/learn/real-estate-agents/rising-rate-environment