Realtors, You should be scared right now!

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Mortgage and Lending with Robert Ashby Photography

Why did I start off with this statement?  The recent destruction in the ll0507075Mortgage Backed Securities market has driven interest rates up significantly recently. 

 That means one thing.  Your buyers cannot qualify for as much of a mortgage as they used to!!!

That's right, if your buyer has not locked a loan (and if they haven't signed a contract yet, guess what) they are more than likely not "pre-approved" anymore.  That means you need to rethink your list of homes that you should be taking your client to this weekend.

The fact of the matter is that interest rates have risen as much as .75% in the last month, and up to .50% just in the last 2 days.  If you are not aware of the impact this has on your buyer, you could be wasting a lot of time this weekend.

Here is an example of what I mean by impact...

You have a client who is looking to buy a home.  In order to get one of the homes you have been taking him to, he needs to get a $300,000 mortgage.  Well, a while ago the rate would have been 6.00% giving them a $1,798.65 P&I payment.  Now, the rate has gone to 6.75%, since this client is limited to a monthly P&I of $1798.65, they now only qualify for a loan of $277,000!!!

This could be happening to you buyers and even to many of those buyers that already have contracts, so go back and make sure your clients are still qualified for the home that you are showing them or the home they have a contract on.

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Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL

Robert,  Great Poat!!  I did not think about that but you are right.  Right now most of my files are all refi's so  I am ok.  Good thing I locked them when I did.

Jun 09, 2007 12:41 AM #1
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL
Most people don't think about it enough.  If you don't keep an eye on the markets, reality can bite you in the butt, especially with those who cannot lock rates yet.
Jun 09, 2007 12:50 AM #2
Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Robert very true.. In this case I got lucky... the way it worked out.
Jun 09, 2007 12:53 AM #3
Rainer
130,560
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

great post Robert...

this is definitely showing the opportunity costs of buyers who are waiting til the market changes!  Prices may drop minimally by a percent or two in certain markets... but if rates jump as much as they have, then the small drop in purchase price will still mean a higher payment than today!

Jun 09, 2007 02:19 AM #4
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

The point is that most borrowers are qualified on a maximum monthly payment and not just the rate.  If the rate goes up, they can't get as big a loan, so no longer qualify for the homes they have been looking at recently and have wasted the Realtor's time.

As you can see, for the same monthly payment, the difference in rate equates to $23,000 less loan that the borrower can qualify.  Some situations may be even more dramatic, some less.  More than likely, the buyer will have to rethink what homes they can truly afford and the Realtor would be wise to take the important first step in that direction (shows more expertise and looking out for the client).

I am wondering how many Realtors are out showing houses this weekend to clients who no longer qualify for the homes they are being shown!

Jun 09, 2007 02:29 AM #5
Rainer
25,010
REMOVE REMOVE
International, IT

Well posted as always Robert.

It's a common occurrence in this industry and most people are usually surprised by it.

In spite of loose lending guidelines, I don't think anyone should be looking at home at the max qualifying payment regardless of rates.  

As you know, some lenders will let people qualify with total debt ratios of 60%.  That's 60% of their gross income.  If you gross $5K, you can have $3K in PITI and other credit report debts. Figuring 25% for taxes and this borrower will only have $750 a month to pay for tv, phones. internet, electric, food, heating oil, and whatever else.

Jun 11, 2007 02:50 AM #6
Rainmaker
98,378
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Jason,

I am with you on the fact people should not be looking at homes based on their maximum payment, but the fact is many do.  I do not work with lenders that will go to 60%, they are foreclosures waiting to happen and lenders that will likely be out of business or have a lot of inventory on their hands. 

That being said, if they are using 60% only for self-employed borrowers, I can understand that.  The reason is that most self-employed borrowers, like myself, take tax deductiosn to heart and are aggressive at getting all of the deductions legally allowed to them.  They could be showing a small profit, or even a loss on "paper", but the reality is they are able to live comfortably.   

All businesses do this, but for the self-employed it passes over to their individual tax forms as well, so they may show a lower income than reality.  That's also the reason many businesses improve their balance sheets by $2.1B, but only report a profit of $200M.

Jun 11, 2007 03:53 AM #7
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Rainmaker
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Robert D. Ashby

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