My best advice to my clients in the current rate environment: Accept the hand of cards we are dealt, be strategic when playing the hand, and find the win using the tools you have available. The pendulum has swung drastically over the last year. And certainly, in the last 6 months. Buyers remain steady in the market but struggle with the percentages they see offered to finance. I am finding myself using the hand of cards analogy often. While we cannot change the rate environment, we can be strategic. This approach takes time and attention to the individual client goals, resources, and mindset.
Playing the cards wisely is about skill and experience. There is no luck. I am encouraged by the conversations I am having even as rates may be “high” by comparison of recent years. Once I have the opportunity translate the percentages into dollars and create a strategy for the individual buyer, a change in mindset about the home search begins.
First, I will point out rates are one of many variables to an outcome. In the context of a mortgage, the outcome is the monthly payment. And the payment is an expression in dollars (not percentages). To truly understand the impact of a higher or lower percentage, a buyer must understand how a rate translates to a monthly budget. From there, we decide if the higher percentages are truly a deterrent to financing a home purchase. To get to a buyer’s desired outcome/monthly payment, we strategize to
their goal. Asking important questions like “What is your target monthly payment?”, “How much cash do you have available to close?” and “What is your long-term goal for this home?” are among the questions I ask. Through dialogue and collaboration, we identify the tools available to achieve a payment goal.
Let’s run through an example. And stay with me because this example should strike a chord. Take $10k in available funds. Say a buyer wants a 30-year term on a loan and plans for 20% down on a $750k home. The buyer has 20% + additional funds from selling their home from appreciation in the market since buying four years ago. Win! Let’s see what $10k can do? Should we apply $10k to buying down the rate or do we apply $10k to the down payment? Depending on the market on a given day, that $10k could buy down the rate .75% on a $600k loan. On a $600k loan, lowering the rate .75% would save
$298/mo in interest. If that same $10k is applied to the down payment instead of a rate buydown, the payment is reduced – $62/mo. In this example, where do we get the most mileage out of the money?
Strategy in a higher rate market is looking at opportunities like these and presenting them as possible solutions to borrowers. The example of using $10k to buy down the rate is exemplary of my “hand of cards” analogy. There is no one solution for all. And not everyone believes in the concept of buying down the rate. There are many options to consider and compare in home financing. This is why the
individual consult is more important now than ever. Many consumers are trained to believe the value of a lender is derived of who offers the lowest rate. The pursuit of the lower, advertised rate can be an uncertain and less desirable path when the reality behind that rate is revealed.
Rates are extremely important. However, a buyer must understand there are more variables to consider in securing the best financing package. The right lending resource should listen to their client’s goals, understand the desired outcomes, and present customized solutions. The hand of cards is the market. The buyers are sitting at the table. Dealer’s choice. I am here to be guide and the person who can help buyers play their hand of cards and win. In every market there is opportunity. And in any market buyers looking to finance need an ally.