Mortgages rates have been in the 7s and heading towards the 8s if the economic numbers continue to come in strong and the market is pricing in future Fed Funds rate hikes.
Treasury rates have been moving quite a bit daily in response to economic & macro world news. The 10 Year Treasury, which the 30 year mortgage most closely mirrors in trajectory, has been moving higher. Today’s news was unexpected gains in jobs. However if you look at the yield curve on any given day, you’ll find inversions- where long term bonds have lower yields.
Please note that any rates you see referenced online in mortgage rate surveys or quoted in articles are usually quoted with varying points. This means that 1 lender quotes the rate at .25 points, another at .5, and yet others at 1pt to come up with the average rates. This makes it very hard to track rates from day to day, week to week nor compare apples to apples which you can do at par (no points aka no cost). Talk to a lender to understand where today’s rates are, as they move every day, sometimes many times a day.
The other big factor is the spread between the 10Y & 30 year mortgages which is currently very wide at over 300 basis points.
What does this mean to you if you’re Selling your house or a 2-4 unit? Your qualified Buyer pool is shrinking. Buyers have to qualify on Debt to Income Ratios (DTI). The rate drives up the payment which lowers the buying power.
As your listing agent, we’re going to discuss market conditions & inventory for your property type, condition, zip code/neighborhood, price point and your specific location as to the strategy in the price. For residential we’ll talk about the 2-1 buy down and your offering to pay for this as a marketing strategy. Ultimately as a Seller, you care about the net proceeds you receive & leveraging the best strategies to maximize
Secondly, I am going to interview every mortgage lender on offers where the Buyer has a mortgage. The quality of the lender, their knowledge of the Buyer, confirming that they went through the full financials including tax returns of the Buyer is key.
If the Buyer is self employed or a Buyer has had significant shifts in income, this is particularly important to understand the numbers. I’m also going to look at their proof of funds and talk to the Buyers Agent to make sure they are not marginally qualified, needing every last dollar to qualify. If I have any concerns, I am going to ask the Buyers Lender to cross qualify with a Lender I trust. Basically I want a Lender I know well, who is extremely experienced to vet the numbers.
Back to the 2-1 buy down. I spoke to Matt Young, Mortgage Broker of Own Mortgage about programs that are helping ease the pain of high rates. There is also a 3-2-1 buy down but I’m just going to keep it simple and talk about the 2-1. This is a lender program where some of the rules & options may vary between lenders, but the gist of the program rules are as such:
This is a temporary buy down of the Buyers mortgage rate. If the Buyers mortgage rate is 7.5%, then the 2-1 buy down means in Year 1, the Buyer’s mortgage rate is 5.5%. In Year 2, the rate is 6.5%. Year 3 and beyond, the rate is 7.5%
This is strictly pre-paid interest. In the case of UWM (calculator referenced below), one of the largest wholesale lenders, the buy-down must be paid entirely by the Seller in order for the Buyer to keep the full amount of the buy-down IF they refinance prior to the end of Y2
This is not like buying points which is a cost to buy down the rate and is for life of the mortgage
Counts against lender limit on credits and the percentage limit varies by lender. If there are other concessions, this may mean you can’t offer additional credits but instead reduce the purchase price. Or limit the options to 2-1 vs 3-2-1 if you are paying
As a Seller, it is less expensive to you (net proceeds) to offer to pay for this 2-1 buy down than if you lowered the purchase price of the house, which has less near term impact on the Buyer's payment. In other words, it costs you less than reducing the purchase price, and the Buyer sees a larger near term lowering of their monthly payment
There may be a jumbo rate buy down option depending on the investor
Here is an example buy down based on a $1.2M purchase price, 20% down & loan amount of $960,000 which falls under the high balance conventional loan limits.
If you are selling a 5+ multi-family residential building, rates are going to likewise impact the amount of equity the Buyer needs to bring into the deal for the DSCR the lender requires to lend on the building, and the Buyer is going to want a lower price. You may want to consider offering Seller financing to get the best sales price and be more attractive than the competition. Talk to a real estate attorney if you’re not familiar with Seller financing and understand all the pros/cons.