How today’s interest rates affects your affordable price of home

[Repost] 

I have a listing for a single family home priced at $499,900 on the market, and have the privilege to talk to several potential buyers who has addressed their interest in purchasing the home. 

One of the potential buyers I spoke to this week, had told me that she was pre-approved for a loan amount of $500,000, and that she was willing to put an offer for full price at $499,900. 

While I was waiting for the formal offer to come across in the next few days, I had not heard back her, so decided to give her a call to follow up. 

That’s when I found out, that with the recent hike of the interest rates, her loan company dropped the affordable home price amount from original amount $499,000 to $475,000…!  

What this means is, that not only is she no longer able to submit a full price offer (unless she is able to come up with additional $24,900 cash to cover the gap – but I know this is very difficult for most buyers), but also she will have to re-start her home search under new budget $475,000! 

According to Bankrate, Illinois Mortgage rates is reaching as high as 5.5% as of today (reference URL: https://tinyurl.com/752f2ycw), which initially started in the low 3%’s at the beginning of the year 2022, increasing in a much faster pace than we all anticipated. 

The increase of mortgage rates makes homes less affordable to the buyers, which leads to uncertainty for the buyers whether to still buy this year or not. 

There are some suggestions that I can make to the buyers under such circumstances, such as to talk to additional lender to re-run the numbers (which could increase the affordable home price), or negotiate with the seller to take over their mortgage loan if they have a good interest rates locked in, etc., which I am happy to share based on individual needs. 

So how does this impact the sellers?  

It is said that higher mortgage rates historically has slowed down the home appreciation, so will likely put a slow down increase of home values (though home prices are still increasing, the point here is that the pace will not likely as crazy as it was in 2021). 

Here are my suggestions to sellers/buyers making the move in 2022: 

Sellers – Make sure to price your home right based on CMA, market conditions in your local community, as well as economic basis, so that you are enabling buyers to put in affordable offers, in order to close in shortest time with best deal. 

Buyers: Make sure you are reviewing your loan amount / affordable home price range time to time, and move fast before mortgage rates go up further, as they will likely continue to go up (along with home prices) throughout 2022. 

 

If you have any questions, or would like to discuss your situation, please feel free to reach out time, as I’d be more than happy to do a free consultation for you! 

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