As mortgage interest rates go up, home buyers start shopping around with lenders hoping to get a better rate. As they look online, they might gravitate towards the rate that’s half a point lower than all the others. If you come across a rate from a bank you’ve never heard of that seems too good to be true, it probably is!
Right now, we’re seeing a lot of bait and switch tactics online and a lot of non-refundable application fees. Some banks make their money not by the loans themselves but by the fees they charge. They offer a 4% rate and make you fill out the application in order to collect hundreds of dollars in application fees. Then, they tell you that you don’t qualify for that 4% rate, but you can still get the number that’s more on par with what the other banks are charging.
When rates are going up like they are right now, banks notoriously charge extra fees in order to give “competitive” rates even after the application is received. For example, a lender can promise a 3.9% rate, but it will cost you $10,000 in fees in order to buy down that rate. Interest rates and fees are a balancing act in any loan, and it can be difficult for experienced buyers and even Realtors to understand how a particular lender is tailoring a loan package. This is why it’s important to have a trusted lender who can honestly break down a Loan Estimate and explain where the numbers are coming from. If you’re looking for a recommendation, our in house lender can take your Loan Estimate and help compare apples to apples so that you know the true costs of two different options.
Buyers who have been looking at homes for a while and just talked with their lender a month ago are now having to shift their expectations since rates are a quarter of a point higher. As a general rule of thumb, a 1% change in mortgage rates produces roughly a 10% change in purchasing power. For example, if you’ve been approved to buy a $300K home when rates are at 4%, then if rates jump to 5% you’ll only be able to afford a $265-270K home with the same monthly payment amount. Keep this rule of thumb in mind if your purchase is 6 months out or more because increasing interest rates are going to combine with increasing real estate prices to affect your overall affordability.
Questions about Charleston real estate prices, mortgages, neighborhoods, or anything else Charleston related? We’d be happy to help! Just call or contact us online!