Real Estate by Nick Abbadessa
Nick Abbadessa

Interest rates have dropped dramatically making it a win for home buyers and sellers

interest rates dropped

Interest rates have dropped!

In March, interest rates tumbled, setting the greatest one week fall in over a decade. In fact, the 30-year fixed loan plummeted 27 basis points and the 30 year fixed rate is now closer to 4%.

With such low rates and the busy, spring home buying season kicking off, purchasing a home has become more affordable for home owners. With reduced mortgage rates, home owners are able to pay less for their monthly mortgage payments and / or increase their purchasing power. In other words, in terms of the latter, they are able to afford to purchase a larger home.

This is a win-win situation for home buyers and sellers. Home buyers, as mentioned are able to purchase a larger home, pay for a lower monthly mortgage payment with the recently reduced interest rates, and qualify easier with the reduce rate.

Given that one’s debt to income (DTI) ratio plays a major factor in determining whether they qualify for a loan or not, a reduced mortgage rate means those home buyers who otherwise were at the crisp of qualifying due to a high DTI ratio, are more inclined to qualify.

To elaborate and to keep the math simple, let’s imagine a borrower makes $1000 a month. Let’s also imagine that to qualify for a mortgage, the loan program requires a maximum DTI of 45%. This ratio would mean that the maximum debt the borrower can have (which includes the mortgage payment and generally anything presented on his/her credit report) cannot exceed $450 a month (again we are using easy math for explanation purposes). With higher rates, a borrower will have a higher mortgage payment, making it harder to not exceed the maximum allotted monthly debt. With reduced rates, however, a borrower will have a lower mortgage payment and subsequently lower monthly debt, increasing their chance of meeting the DTI requirement.

That said, in turn, with home buyers locking in these rates, they are ready, qualified, and highly motivated to purchase a home before their rate expires or rates rise again, making it a win for home sellers.

Furthermore, if you read my previous blog, then you are probably are aware how now is the time to list your home if you have been considering selling. Particularly, if you are considering selling a larger, more expensive family home, early spring is the time to sell – to receive a higher return on investment and close more quickly.

Families looking to purchase a home desire to move during summer when their children are out of school and on summer break. Given the time it takes between listing and closing, the ideal time to list to capture such buyers is early spring. Knowing this, nonetheless, many sellers wait till later in the spring to list, making it a great benefit for sellers now.

With less competition and an increase in home buyers ready to take advantage of these historically reduced rates to purchase a home, now is the time to list if you’ve been considering selling your home this year.

If you need any help listing or buying a home, please don’t hesitate to reach out.

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