Over the past few weeks my phone has been ringing with inquiries from buyers off my “For Sale” signs. Open houses have been booming with traffic lately. Manhattan and Redondo Beach home sales are up. The limited inventory on the market right now is sold in a week or less, with multiple offers, over asking price. This tells me that consumer confidence is up, and people are ready to make a move in the market now. This is good news. However, with every bit of good news, you can bet that will mean a rise in interest rates.
Who read my article, A Very Interesting Market, published less than 1 month ago, on interest rates being the lowest they have been in our lifetime? Well, you should have called me then, because, sure enough, interest rates are now on the rise. I told you we bottomed out. Technically, we bottomed out 4 years ago, it just hasn’t started climbing until just recently.
No matter, it’s impossible to know exactly when the bottom hits, you just have to be ready to act while it’s still low. Ben Bernanke, the current Chairmen of the Federal Reserve Bank, has stated publicly that he will keep rates low until 2014. But I don’t trust Ben Bernanke, and what exactly is his definition of “low?” 8.0%? 9.0%? 12.0%.? The interest rates on my credit card are 22.9%, so it’s all relative. And you can bet rates will increase again by the start of summer.
Why do I say that? Most of my potential buyers have stated they’ll be ready to look in the summer. Yeah, EVERYONE is going to be looking this summer. So, if I’m a bank, I recognize that as DEMAND going up once again. And when demand goes up, so do interest rates.
So, who is ready to buy a house RIGHT NOW and beat the summer rush?
Awesome! BUT,… before I start driving you all over town, are you pre-qualified yet? No? Then you’re not ready to buy a house. Pre-qualification is REALLY the first step in buying a home. It is a vital step, but an easy one.
Getting pre-qualified simply means that a loan officer has taken some information from you and made a tentative estimate on how much you’ll be able to get a loan from the bank for. This is an important first step to determine your “price points,” or what you’ll actually be able to afford in overall purchase power, as well how high your monthly mortgage payments will be. Without getting pre-qualified first, it’s simply a waste of both of our times looking at places that, either you cannot afford to buy, or ignoring one’s you thought may be beyond your means, but actually are well within your means.
With a pre-qualification, the borrower is typically asked for social security number as well as their employment, income and asset information and the amount of current monthly debt. In addition, the borrower’s general credit worthiness is taken the form of a credit score. This is a requirement because you must have a credit score determination prior to any vetting of information. That is one of the absolute factors required to give a proper pre-qualification. For an FHA loan you’ll need a credit score of at least 580. Want to check you credit score for free? Try freecreditscore.com or freecreditreport.com.
Once the loan officer has these figures, they can determine if you pre-qualify, or not, for a certain loan amount based on your “debt to income ratio,” (the percentage of your GROSS income that the underwriting will allow you to spend on your mortgage payment, more commonly referred to as DTI) . Generally 36%, is required for a true conforming loan type.
For example, if you make $5,000/month, the lender will calculate in the industry-standard DTI of 36%, pre-qualifying you at a total debt of $1,800 (this means your monthly payments, including car & credit card min. amount; along with the proposed payment of principal, interest, taxes and insurance on the house should be no more than $1,800 a month).
So, who is ready to take that first step? Technically, you don’t even have to leave the couch, I can have my lender call you, and pre-qualify you right over the phone, in 15 minutes. That will at least give you a ballpark idea of what you can possibly afford.
Don’t wait too long. Get prequalified now. That way, when the summer blows up with first time buyers, you wont have to wait a week for bank approval. Your approval letter can be done that day, while I write up the offer, and you cut a check on the spot. You’ll be signing escrow papers while the other buyers scramble to find last year’s tax records and fill out paperwork that you completed back in March.
Sound like plan? Call me today to start the process 310-722-5959.
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*Next Month: I’ll tell you how to clean up that 420 credit score you’re now staring at on freecreditreport.com. 😉