When rates are rising why would anyone wait? We have heard about residential mortgage rates increasing from their low of 3.5%. Today conventional rates for loans up to $625,000 are around 4.875% for a 30/30 and 4.5% for a 15/15. That increase creates an 11% increase in the monthly payments for buyers. These rates do not apply to buyers putting down less than 20%. This increase over time affects first time buyers more than those looking for their next home or investment property.
Buyers looking for their next home typically have more disposable income along with well established credit, with FICO scores of over 740. These borrowers can get 3M with only 10% down and no mortgage insurance with 740 or higher FICO scores and ratios up to 43% on the back end, after consideration of all their current debts, including the new mortgage. Since mortgage insurance can be expensive and not something that can give the borrower a tax advantage, this can be a very good time to buy since rates are still relatively low.
Have you heard the saying, “When is the best time to plant a tree? It’s now!” The same goes for buying with lower interest rates. For those that bought 2 years ago, they are enjoying lower payments, and with rates rising, now is the best time to buy.