5-4-18: Do I need to get re-pre-qualified?
Question of the week: Do I need to get re-pre-qualified?
Answer: Probably.
As you can see from the chart below rates for 30 year fixed rate mortgages are about three-quarters of one percent (0.75%) higher than they were in January.
In real numbers, on a $400,000 mortgage that is a difference of about $175 more per month. Depending on several factors, with the increase in the rate you may not qualify for the same price today you did in January.
Let’s assume that you were pre-approved for the purchase of a $500,000 home with 20% down and a $400,000 30-year fixed rate mortgage in January. Your credit obligations are about 10% of your gross income. When we pre-approved you in January your income was about $6500 and you were at the maximum debt-to-income ratios will all factors considered (cash reserves, credit score, etc). If there are no other changes to your financial situation for the same purchase of a $500,000 home with 20% down you will need to earn $500 more per month to qualify.
If your income is the same, then you either need to pay down your debt so your monthly payments drop $175 per month, or lower your sales price and loan amount. Using the same $100,000 down your new sales price would be $470,000, a drop of $30,000 in purchase price due to the increase in rates.
As the prices and loan amounts go higher, so do the differentials in monthly payment with the rate increase, for a $500,000 loan the difference is about $255 more per month today than January.
For those who have been waiting for prices to come down before entering the real estate market you are losing more purchasing power with rate increases than you may be looking at whenever any market correction may occur. Take the example above, with a decrease of $30,000 in purchasing power the borrower has lost 6% in value from what s/he could have purchased in January.
If you have been pre-approved to purchase a new home longer than three to four weeks ago I strongly suggest you have your information updated so you know what you are qualified to purchase. If you are a real estate agent, I strongly suggest any pre-approval you receive has current rates and “fresh” qualification information—they potential buyer may have been qualified in February, but may not be qualified today to purchase your listing.
To go through your options for purchasing a new home, please contact me so we can run through your options.
Have a question? Ask me!
First week of the month economic data is always interesting. On Monday we learned that personal incomes rose a modest 0.3% in March, which was outpaced by consumer spending which was 0.4% higher in March than February. With the increase in spending above income the savings rate declined slightly for the month to 3.1%. The eye grabbing news for investors in the report is that the core inflation rate year-over-year for March was 1.9%, nudging up against the Fed’s 2.0% target rate. Overall the news was somewhat mortgage rate unfriendly, while the increases are somewhat subdued; they are nonetheless reflective of continued growth in the economy and employment.
Taking into consideration the inflation rate, on Wednesday the Federal Reserve released its minutes from it meetings this week. The Fed’s expectation for inflation was a high of 1.9% for the year, again just below its target rate of 2.0%. With prices hitting their expected high in the first quarter there is concern from Fed members that they may need to make some unannounced, or expected, rate increases this year. At this point it appears there will be another hike of 0.25% in June, but if inflation speeds up we should expect more rate increases as the Fed tries to keep ahead of prices and not have to chase inflation. The meeting notes were somewhat concerning to investors and puts upward pressure on rates.
April employment showed continued growth at a solid pace. Payroll growth was within the range of expectations;164,000 new jobs over all of which 168,000 were in the private sector. Hourly earnings were up a scant 0.1% from March and are up 2.6% year over year. The headline number is the unemployment rate dropping below 4% to 3.9% for the month. The news shows growth in employment, a bit mild but still solid, and that is negative for mortgage rates.
Rates for Friday May 4, 2018: An opportunity to catch our breath with rates flat from last Friday after a few consecutive weeks of rates increasing. The expectation is not for rates to drop, if they do it will either be very temporary or as result of some major negative event. What we are looking for is the top of the range. Rates, like stock prices, generally stay within a range for a period of time before breaking out, up or down, and establishing a new range. With rates increasing one-quarter of one percent (0.25%) in two weeks we are looking for when the increases will stop and rates remain within a range week-to-week. Perhaps we have found a new range, but we won’t know until at least two more weeks. Lock your rate when you can!
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 4.49% Flat
30 year high-balance conforming 4.75% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Star Wars fan? Me not so much. I enjoy the movies, but am not a big fan or follower. For instance, I got really confused when they started the making movies that were decades beyond the release of the first one and then called it Episode 1. I have no knowledge of the characters beyond the originals, the hairy thing, the beep-boop robot and the others, but understand others are very much into the whole genre. And to them I, somewhat reluctantly, say May the Fourth be with you!
Have a great week,
Dennis
