\u00a0<\/p>\n Cost vs price. What is the difference? <\/span><\/strong><\/span><\/p>\n \u00a0<\/span><\/strong><\/p>\n A lot of buyers have a tendency to look at just the PRICE of the house instead of the overall COST to buy the home. The cost is actually more important. So what is the difference between cost vs price and why is this so important for a buyer to understand? Cost is what a buyer will pay for a home overall, including financing costs. Price is just the actual price tag the buyer will pay the seller for the home not including any financing costs.\u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n This is why it is so important for buyers to understand that rising rates have a tremendous impact on a buyer\u2019s overall cost and monthly payment. We all know there are home buyers still standing on the sidelines waiting for the prices of real estate to hit rock bottom. But buyers need to be concerned about the monthly COST as much as\u00a0they are concerned about the PRICE of the home. Here is why.<\/span><\/p>\n \u00a0<\/p>\n Impact of higher rates on payment<\/span><\/strong><\/p>\n Let\u2019s take a look at some numbers to see what rising interest rates do to the monthly payment on a loan. Here is a great chart below that shows\u00a0as the rate goes up the affordability of the buyer goes down. As you can see, with every 1% increase in rates, the buyer loses 10% in affordability. <\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n So lets say if someone was shopping in the $400k range a month ago because that was their maximum mortgage budget, unfortunately that same buyer will now need to be looking in the $360k price range today to keep the same monthly mortgage budget.<\/span><\/p>\n \u00a0<\/p>\n Making sure buyers still qualify at higher rates<\/span><\/strong><\/p>\n Unfortunately higher interest rates are going\u00a0to\u00a0affect a buyer\u2019s purchasing power and monthly mortgage budget.\u00a0So it is going to be very important that buyers know if they can still qualify and can afford higher rates. For example, a pre approval that the buyer has had for\u00a03-6 months putting in offers at\u00a04% that stretched their budget, might be unaffordable\u00a0now because rates are at 5%.\u00a0For example, on a $400k loan the\u00a0payment increases\u00a0$238 a month when the rate jumps from 4% to 5%.\u00a0This is almost a car payment for some families.\u00a0<\/span><\/p>\n Higher rates\u00a0will\u00a0also affect\u00a0any current purchase offers or loan\u00a0approvals\u00a0that buyers may have. So for someone that was shopping in the $400k range a month ago and the rate was 4%, that same monthly payment will only get a home for $360k now with rates at\u00a05%. Remember\u00a0also, lenders have been tightening their qualifying ratios recently and are constantly changing their rules, so make sure any increase in rates\/payments do not disqualify a buyer from a certain price range either. <\/span><\/p>\n \u00a0<\/span><\/strong><\/p>\n What are rates at now? They are still at\u00a040 year lows!<\/span><\/strong><\/p>\n \u00a0<\/span><\/strong><\/p>\n With rates\u00a0now back up to\u00a05%, the question is where\u00a0will\u00a0they go\u00a0from here? Well all experts are predicing they are on their way to 6% soon,\u00a0as the bond markets have gone on a massive sell off since the inception of the Feds stimulus program “QE2” on November 4th 2010.\u00a0I think they are probably going\u00a0to a 5.25% 5.5% range\u00a0over the next few months and\u00a0possibly may go higher. But on a positive note, they are still at historical lows when you compare them with interest rates over the past\u00a040 years.\u00a0Here is a good chart that tracks interest rates for the past\u00a040 years.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n So for anyone still looking at buying a home, you can let them know they can still qualify for the lowest rates in 40 years. Hopefully this will lessen the blow for those folks that did not get an opportunity to\u00a0purchase when they were in the low 4% range.<\/span><\/p>\n \u00a0<\/p>\n Bottom Line<\/span><\/strong><\/p>\n <\/strong>\u00a0<\/p>\n Everyone wants the best value possible whenever they purchase anything.\u00a0When buying\u00a0real estate, the best value is not determined by price alone. Value is determined by price and financing costs. So buyers most take both into consideration when timing their\u00a0purchase.\u00a0<\/span>\u00a0<\/p>\n If you know anyone that is considering the purchase of a home but believes that waiting is the prudent thing to do because prices may continue to soften, make sure you keep an eye on interest rates for them and have conversations regarding increasing payments and if\u00a0they\u00a0still fit into their mortgage budget. Otherwise all those days spent writing up approval letters and showing homes at a particular price range will be to no avail if the buyer cannot afford the new higher payment.\u00a0<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n Please feel free to contact me with any questions you have.\u00a0I look forward to chatting soon.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span>\u00a0<\/span><\/p>\n \u00a0 \u00a0 With rates\u00a0jumping from 4% to 5% on a home loan\u00a0in just over a few months,\u00a0it might be\u00a0fair to say we\u00a0may have\u00a0hit bottom in the housing market when factoring in what the overall cost is to buy a home? Because did you know that with every 1% rise in rates, the buyer loses 10% in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[140],"tags":[],"class_list":["post-697","post","type-post","status-publish","format-standard","hentry","category-as-mortgage-rates-increase-by-1-a-buyer-loses-10-in-affordability"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/posts\/697","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/comments?post=697"}],"version-history":[{"count":10,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/posts\/697\/revisions"}],"predecessor-version":[{"id":705,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/posts\/697\/revisions\/705"}],"wp:attachment":[{"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/media?parent=697"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/categories?post=697"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.michaeladeery.com\/blog\/wp-json\/wp\/v2\/tags?post=697"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/span><\/p>\n
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