Being a mortgage banker is a heady business surrounded by feel-good stories. I have to keep on the edge of what’s going on in the markets that will affect rates, up to date with the latest in lending guidelines and products and then I get to sit with people as they buy their very first homes.
People have been complaining about the rise in interest rates over the last three years. The average 30-year rate for a conventional loan is around 6.676%, according to OptimalBlue – which is the industry’s leading pricing engine for lenders. That rate makes many groan, but no one is ready to welcome back the global pandemic that shoved rates down to all-time lows in 2020.
Interest Rates in Cautionary Stance
We were dipping just under 6% right before war broke out with Iran. Once it did, and the flow of oil choked down in that part of the world, economists and rate-makers feared inflation would follow and mortgage rates moved into a cautionary stance. So far, inflation has not moved like many predicted and has been held in check.
If inflation does rise quickly, the Federal Reserve will likely have to raise their short-term rate, which in-turn raises rates for things like car loans, small business loans and every other kind of loan. The idea is to make borrowing money expensive, so less people borrow. This puts less money out in the economy, thus reducing demand for goods and services, thus driving down prices of those goods and services. This is the opposite of what they did when inflation, and demand, went way down during the pandemic and they were forced to lower rates, so more people would borrow and buy more things.
I cannot predict what will happen, all I can do is try to help those who need it now. And there are plenty of people looking to buy houses right now.
Who Is Buying Homes Right Now?
I just closed a loan last month with a woman who just finished being a single mother. For the last 22 years, she raised her two boys – working two jobs. She never thought home ownership was attainable for her. It wasn’t even in her dreams. But when the last boy moved out, she started thinking of herself and she reached out to me.
I pulled her credit and it was not good. She had some high balances on her credit cards, in addition to a couple other things. We rolled up her sleeves. I used software that is available to me to determine the best things she could do to get her credit scores up and we parted ways. A lot of times when I do this, I never hear back from my client. But one year almost to the date, she called me back, telling me that she had done exactly what I said. I pulled her credit and sure enough, her scores where up and I was able to get her pre-approved. When I told her that, she immediately broke down in tears.
She went out with her Realtor, found a home she liked and got it under contract. When I got to sit at that closing table and watch her sign the papers for her first house – at 48 years of age, I almost broke down in tears with her. It was a highly rewarding moment that made me feel proud about what I do.
On the flip side of that, I had a client looking to move up to their family’s third home. His business grew fast over the last 5 years, and they were ready to move up to a $1.6M-home. I had done his previous two loans, and we had a fine time doing this one together. His situation was a little more complicated this time with the various business, tax returns filed and numerous asset-accounts. But we were able to work with his financial advisor and do all of that in the background while he kept focused on his company.
It was a fun loan for me to do because I’d done the first one 12 years ago for he and his wife’s first townhome. It was $325,000. And the second one, which they bought after they had their 2nd child. It was $720,000. It was great watching him sign the papers for his $1.6M-home as if it was just one more thing he had to do in a day.
Loan Products Are Expanding In Today’s Market
Like life, the markets are always changing. There are numerous programs designed to help people experience the joy of homeownership. We have several down payment assistance programs where we will lend a borrower the entire down payment. And if they pay their first mortgage on time for the first three years, that loan goes away.
We have bank statement loans for small business owners whose tax returns don’t show enough net profit to qualify for a standard, conventional loan. We have asset-depletion loans for retirees who don’t technically have a typical income, but have enough assets to make our underwriters comfortable. We have DSCR loans for investors where we don’t even look at income. For those, we just need the potential monthly rent of the property to be higher than the mortgage payment.
If you want to buy land and build, we have really great construction loans. And renovation loans if you want to buy that outdated house and bring it up to speed.
There are a lot of ways to get financing for your next home and there is never a better time to set down a path than now. I love when people come to me and tell me they want to buy in a year and want to get pre-approved and find out what they can do to make sure they are in the best position to get the best rate and loan terms.
The markets are uncontrollable and there is no telling where interest rates are headed. But there is no good argument for renting and the house you want to buy will be at least 5% more expensive next year.
