I recently met with a couple who are getting ready to buy their first home. I love that they are meeting with me several months in advance to work on their preapproval and address any questions or concerns they may have. They qualify to use VA financing and are considering a home priced around $400,000 and will do zero down payment.
Right now, mortgage rates are very low. With credit scores over 720, I’m quoting a rate of 3.250% (apr 3.437) for a VA 30 year fixed mortgage which has a principal and interest payment of $1778.25.
Since their plans are to close in December after their current lease is up, they asked me if I had any idea where rates will be. Honestly, it’s not an easy question to answer. Rates have low for such a long period of time that it’s mind boggling. Between now and December, we will have our Presidential election – it’s hard to say how that may impact mortgage rates. Another factor to watch for is inflation, which will drive mortgage rates higher. The economy’s recovery will also impact mortgage rates.
It’s anticipated that mortgage rates will remain low for a while. In my opinion, “low” mortgage rates is under 5%. I don’t think it’s unreasonable to rule out rates at 4 or 4.5% by December. Higher mortgage rates could be a result of an improving economy.
Let’s assume rates for this scenario trend to 4.000%. The principal and interest payment increases $172 to $1950.72. If the borrower is limited to the $1778.25 payment and rates are 4.000%, it reduces their buying power by $36,000 to a sales price of $364,000 (assuming VA zero down scenario).
Housing prices could go either way as well. We are already experiencing bidding wars in the greater Seattle area for non-distressed homes.
There is no way to truly predict where rates will be months from now or what housing inventory will be available. We do know that mortgage rates are extremely low now.
If you’re interested in getting preapproved to buy a home located anywhere in Washington state, please contact me.