We Don't Talk About...

If you have kids or are a Disney fan, your answer may be Bruno. If you recently traveled to “Sin City” your answer may be Vegas – what happens there, stays there, right? But if you’re in Real Estate or Mortgage Lending, you may answer with “Mortgage Rates.” Ah yes, but good luck NOT talking about rates with consumers – it seems to be all they want to talk about – especially in the current rate environment.

In my years as a mortgage lender, it often becomes an opening question at social gatherings, family events and even the first question a potential client may ask when then call. How to answer the question is often delicate. Does the person asking the question really understand what they’re asking and what the response means? Suppose I answer with 5%. Are they immediately running calculations in their head on what a monthly payment may be on a $200,000 mortgage? Most likely not.

It’s often somewhat of an empty question – almost like when you ask someone how they are when you truly don’t care. As tempting as it may be to respond with a sarcastic answer of some type, I prefer to use the opportunity to reply with a question, “why, are you looking to buy a home?” As they say, ABC – Always Be Closing.

With mortgage rates rising, we are often faced with talking clients off the ledge and keeping them engaged with their home purchase. Historically, a mortgage rate at 6% or 7% is not going to bring the housing market to a screeching halt. We all know someone who has been in the industry when rates were in the mid-teens and I’m sure they’ll tell you people were still buying and selling homes.

Mortgage rates were undoubtably driven to artificial lows for a period of greater than two years and it does become difficult for consumers to digest the quick rise we have seen over the past few months. When the time comes and the dust settles, more consumers won’t have the sticker shock they’ve encountered over the past six months when learning rates have essentially doubled.

There isn’t any specific way to avoid the interest rate question or conversation but the best way to manage it is to shift the focus to payment and budget – ultimately that is what is going to drive a buyer’s decision to purchase a home.

Think about shopping for a car – when you go to the dealership, take the test drive, and then proceed with negotiations – you generally don’t ambush the salesman about the interest rate – you discuss the monthly payment based on your budget and financial resources for down payment, etc. This is the direction we need to shift towards with potential homebuyers.

Housing costs are a key component of any budget whether a renter or a homebuyer. Helping a client determine what that number is will lay the groundwork for establishing their buying power when it comes to homeownership. Even though mortgage rates are at a higher point now than the past few years, rents have increased as well so affordability may be somewhat parallel with greater benefits to homeownership compared to renting.

Taking the approach of crafting a monthly housing budget with an approximate 10-15% contingency range should then consider the variables when shopping for a home such as property taxes and fluctuating interest rates. This then creates a target purchase price which should essentially fall within their payment range even with interest rate fluctuation.

Having a target payment range, should help to lessen the focus on the current interest rate and as the buyer finds homes within the target price, a cost worksheet is compiled and presentation is showing a payment to focus on within the buyer’s range, not focusing on the interest rate. Mission accomplished.

Purchasing a home can be a longer-term process and doing a check-up every 30-45 days with an active buyer both on the mortgage side and home preference side will help to keep buyers engaged and within their realistic expectations. If mortgage rates change, adjustments can be made up or down as needed and if criteria change within their home preferences, that can be changed as well.

Even if mortgage rates continue to climb, remember, the interest rate on rent is 100%!

Now, let’s talk about Bruno….

Dan Ranck

Mortgage Loan Officer

NMLS #140989

HomeSale Mortgage, LLC

NMLS #1054689

Direct : 717.271.2400 | efax : 866.849.4320

dan.ranck@homesalemortgage.com | www.danranck.com

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Content provided by HomeSale Mortgage, LLC for informational purposes only. The information contained herein (including but not limited to any description of lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend. HomeSale Mortgage, LLC NMLS# 1054689. Equal Housing Lender.