A Little Perspective Please?

This post was provided by Brian P. Forrester of Vandyk Mortgage

While politics are more of a hot button than ever before and Americans are currently caught in the cross fire of Congressional finger-pointing; we still need to get perspective about how the country’s recent downgrading by Standard and Poor’s is really affecting you and getting a mortgage.

Whoever you want to “blame” for the downgrade, S&P is only one of three companies that provides credit ratings. Much like Experian, TransUnion, and Equifax are our mortgage industry go-to sources for a client’s credit score as they help to determine interest rates…S&P isn’t the only game in town and their peers are still standing firm on the premium credit status for the United States.

And another thing! In comparison to other nations issuing credit, we are still the gold standard upon which others are based. Therefore, the market for our debt still strongly mitigates most of the fears S&P may have instigated.

At the end of the day, amidst all the panic, interest rates actually went down over this past week; so what’s that saying? That’s reiterating that the market will be a main driver in helping to set the interest rates.

Let’s just de-twist the proverbial panties and take a deep breath. Your 401k may have been all over the map this week, but we’ve got money to lend at reasonable rates in a buyers’ market. How’s that for perspective?

When Should Buyers Buy?

When’s the best time to jump into a buyer’s market? How long should you actually wait before you sign on the dotted line? In some areas where the prices are still declining, how can you make the decision if you don’t know how much lower the prices will go? There are a couple of variables that can help you make your move.

Some Home Buyers Should Buy Immediately
Your situation should dictate your decision:
If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
If you can arrange for a temporary place to live, a smart strategy is sell now, wait a few months, buy your new home.

The Impact of Interest Rates
As interest rates increase, waiting to buy can cost you and you might not be able to afford to buy a home at any price:
Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.

Purchase Prices versus Interest Rates
If you put down 20% and qualify for an 80% loan, here are your principal and interest payments on the following purchase prices:
$425,000 sales price, at 8.25% interest, your payment is $2,554.
$450,000 sales price, at 7.75% interest, your payment is $2,579.
$475,000 sales price, at 7.25% interest, your payment is $2,592.
$500,000 sales price, at 6.75% interest, your payment is $2,594.
$525,000 sales price, at 6.25% interest, your payment is $2,586.

The payments are almost identical. However, the home you can afford to buy a 8.25% is $100,000 less than the home you can afford to buy at 6.25%. If you wait for prices to further decline, the perceived value could be lost due to higher rates.

Your best strategy is to weigh all the pros and cons first. Don’t let newspaper headlines dictate your decision!

Interest Rates from Brian

(This great graphic is courtesy of Brian P. Forrester of VanDyk Mortgage Corporation).

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