Interest rates effect on affordability

I read an article this morning from the National Association of Realtors website indicating that interest rates will start to rise in the second quarter. Here's an excerpt: "April 1 will be the first day that the Federal Reserve will end its debt purchase program and allow the struggling U.S. mortgage market to operate unassisted. As a result, the Fed believes mortgage rates will rise about three-quarters of a percent to about 6 percent, Boston Fed President Eric Rosengren said Saturday."

Not a huge increase but it got me thinking. Yes, this might be bad for the real estate industry but my gut reaction was "it's about time!" Rates have been so low for so long that it seems some take it for granted. I wholeheartedly understand that not everyone is in the place where they want to or can buy a home or investment property right now. It's the flippant "I'm not worried about it...rates aren't going anywhere" attitude that rubs me the wrong way. Maybe it's said because I'm a realtor and a debate seems fun...probably because they're not able to buy anyway. But if this is truly the attitude of potential buyers out there, the only thing that will make them see the proverbial light is for interest rates to climb. I can even see a little justification to these beliefs as interest rates have been low and haven't "gone anywhere" too high in quite a long time but all good things eventually come to an end.

I was curious what the 30 year mortgage rate trend has been but had a hard time finding a graph illustrating it so I made one up myself:

(to actually see the graph, right click on picture and click "open link in New tab")

Info. source:

http://www.freddiemac.com/pmms/pmms30.htm

What does this all mean, you ask? Rates play a significant role in affordability of homes. Let's take a principle and interest only payment of $1500 per month and see what price of house it will afford you based on a 7 point rate spread (5-11%) for a 30 year fixed rate mortgage.

5% interest rate = $279K home
6% interest rate = $250K home
7% interest rate = $225K home
8% interest rate = $204K home
9% interest rate = $186K home
10% interest rate = $170K home
11% interest rate = $158K home

These are basic figures taking only interest rate and payment into account. Taxes, insurance down payment, PMI, etc. have not been calculated as they can vary tremendously. See a mortgage professional for accurate figures based on your desired monthly payment or income.

Who knows what the future holds for interest rates and I realize that we probably won't see anything near the 11% mark for awhile but a low interest rate can make the difference between a comfortable mortgage payment and being house poor, which is the point I'm really trying to illustrate.

Let's look at it another way. If the median price for the area you would like to purchase is $210,527. Assuming a 5% down payment, here are the principle and interest only payments based on a $200,000 mortgage amount:

5% interest = $1074/mo.
6% interest = $1200/mo.
7% interest = $1330/mo.
8% interest = $1468/mo.
9% interest = $1609/mo.
10% interest = $1755/mo.
11% interest = $1905/mo.

Again, these are principle and interest only payments. Taxes, insurance, down payment, PMI, etc. have not been taken into account. Here is a link to a mortgage calculator to figure what your individual payment would amount to once you know a tax and insurance figure: mortgage calculator . You will still need the help of a mortgage advisor to figure PMI (private mortgage insurance) if your down payment is less than 20%. I also recommend asking for an estimate of closing costs.

There are plenty of reasons not to purchase a home as well (job instability, potential relocation, bad credit, etc.) but for many, now is a pretty awesome time to purchase. As the Greek say, "Carpe diem!"

Tax Credit extension is finally helping move up buyers!

As you may already know, the "first time homebuyer tax credit" was extended through the end of April, 2010. The part of the credit that was added and has me even more excited is the portion that finally includes current homeowners that want to sell...and buy another home. As much as I love a 1st time buyer, I haven't seen the fairness in not letting move up buyers have a "piece of the pie" as well. Now they can...hooray!!

Here's the scoop:

1st time buyers
-Still receive $8,000 (or 10% of purchase price, whichever is less)

Move up buyers
-Now get $6500 (or 10% of purchase price, whichever is less)
-Downsizing is A-ok (ie. new purchase needn't exceed the price of the house you're selling)
-You must have lived in the home you'll be selling for 5 of the past 8 years

Both Groups:
-Must be in contract on new home by April 30, 2010
-Closing needs to occur by June 30, 2010
-Income for single buyers to be below $125,000
-Income for couples to be under $225,000

-Purchased home can't exceed $800,000

This is not a tax deduction...it's cash in your pockets!

I do realize that buying and/or selling a home is no small feat and would never try to talk someone into doing so. Buuuut, if you are already thinking about moving and your current home is in the first time buyers price range (under $225Kish), I truly don't think there will be a better time to sell...at least for quite awhile. Especially considering how low rates have been.

Whether you've got questions, want to discuss options, or just want to get on the road to your next humble abode, get in touch with me. You'll be glad you did!

E-mail: haley.weaver@kingthompson.com

Cell: 614-530-0005

Office: 614-523-0808

Fax: 614-474-8427

Mythbusting: Real Estate as a Career

As a realtor, of course I understand a lot more about the business and take for granted that the general population doesn’t understand what we do for a living…or how we function and operate as business owners. I’m on a quest to myth bust today. If not for the general population, maybe this will set just one person straight that is thinking about getting into the business and making some “easy money”. If you have any perceptions about real estate or realtors, feel free to comment.

Myth: Realtors work for their respective brokers.
Fact: Realtors are independent business owners. We file a 1099 with the IRS, pay self employment taxes, pay our respective brokers a hefty percentage of each commission, marketing, board dues, etc. individually.

Myth: HER is an all women’s real estate brokerage.
Fact: HER is a company that was founded in 1956 by a man named Harley E. Rouda.

Myth: Realtors get a small salary + commission.
Fact: Realtors receive no compensation until a home is sold. The gas money, time, and research done prior to the home sale is all compensated for at the closing. Further, realtors actually pay the companies that they work for a hefty fee in order to advertise under the brokerage umbrella. Any health insurance, personal marketing, etc. are paid for by each independent agent.

Myth: Realtors do open houses to sell the house that is being held open.
Fact: While every once in awhile this does happen, an open house is typically done in order for the agent to procure buyers that will end up buying another home.

Myth: A realtor with the Million Dollar Award has made a million dollars.
Fact: In order to receive the Million Dollar Award, a realtor must have sold 2 million dollars worth of real estate…5 Million dollar award = 10 million in real estate…and so on.

Myth: Realtors get paid a lot of money to show houses.
Fact: While some bad apples tend to spoil the bunch, most agents help people make good decisions. Buying a home is usually the largest investment a person makes in a lifetime and they don’t do it every day. We do.

Myth: Having a friend represent me as their Realtor is a conflict of interest.
Fact: I have represented many friends in buying/selling and have never let it come between a relationship. In fact, many of the testimonials that I’ve received have come from friends.

Myth: Realtors get a kickback for sending referrals to mortgage lenders, inspectors, etc.
Fact: RESPA (Real Estate Settlement and Procedures Act) actually prohibits realtors from receiving an incentive to send their business to certain vendors. If a realtor refers you to a company, they actually believe in the person/service that the company/person provides.

Westerville, Ohio: Top 10 Affordable activities list

Congratulations, Westerville, Ohio on making CNNMoney.com's list of America's best small towns! Money Mag
In honor of this accomplishment, I am dedicating my first blog article to the city I work in...and enjoy immensely. Here's my list of the top 10 things to do in Westerville. The best part?! These can all be done for under $10:
1-Shop the farmer's market on the corner of State/Home. (Weds 3-6pm/Sat 9-12pm, from June 6-Sep 26th)
2-Check out the Westerville library. Calendar of events page: Westerville library
3-Take a dip in one of Highlands Park's 7 pools: Highlands Park. Speaking of pools, the Rec center has a pretty cool setup too (not to mention plenty of other activities)!: Westerville rec center
4-Head out for a day of fishing (or boating) at Hoover reservoir: Hoover fishing map . Just be sure to get your fishing license first!
5-4th Friday's in Uptown (6-9pm)...or enjoy Uptown's retailers any day of the week!
6-Pack a picnic and head to one of Westerville's many parks: http://www.metroparks.net/
7-Enjoy beautiful views of Hoover and fantastic food at Bel-Lago (previously Hoover Grill). http://www.bellagobistro.com/
8-Take your pooch to the dog park/barkpark: http://www.dogparkusa.com/ohio/columbus/brooksedge-bark-park
9-Get some exercise! Walk, bike, roller-blade one of Westerville's many trails: Trails
10-Enjoy the "Sounds of Summer" concert series (on Wednesday's & Sunday's @ 6:30 pm.): Summer concerts
Oh, and for you singers out there, I hear that Java Central's got open mic nights on Friday's from 7-10 pm too.

ps. forgive me but I'm just figuring out how to change URL's. I couldn't get them all but if you've got any tips, I'd love to hear them.