Brought to you by the Builder Realtor Relations Committee of the Sales and Marketing Council of the Northeast Florida Builders Association
Q. Interest rates have started rising. Is this having an effect on sales?
A. I haven’t seen the rise in rates as being a detriment. In fact, I don’t mind the rates going up a bit. That said, I don’t think the rates will go up significantly. The way the market is trending it looks like we might see rates at the mid- to high-fives by the end of the year. I am still receiving plenty of calls from buyers. It hasn’t slowed down much for me.
Q. Are buyers feeling an urgency to buy due to this new rise in rates?
A. Some buyers certainly are feeling the urgency to take advantage of the current rates – especially the ones who have been in the buying process since the fourth quarter of 2010. Last November we saw rates at 4.25 percent. At that point the rates started to rise and by mid-December they were in the low fives. Those buyers are feeling the pinch if they figured their numbers at the lower rates. Their buying power has deteriorated. The new buyers coming in don’t have the sense of urgency. They just need a little clarity and the voice of reality on where the rates are likely to head in the coming months.
Q. Has this change affected the type of loans buyers are seeking?
A. I have had a few buyers inquire about ARMS due to the rise in rates but not many. Most still want the peace of mind associated with a 30-year-fixed mortgage. As the market has evolved over the last couple of years, we have seen more and more buyers utilizing FHA and USDA products over conventional loans.
Q. How are you educating buyers on the current lending environment?
A. Basically, the conversation starts like this: “If you haven’t bought a house in the last two months, it’s like you’ve never bought a house before.” This is because of the frequent updates and changes to lending guidelines, disclosure and policy. Things are moving fast. We have gone somewhat “old school” these days. When I started in the business in 1994, we did not rely on automated systems to approve loans. We simply did the math, reviewed the credit and if the deal made sense, we did the loan. Clients need to understand that we are in the business to make as many loans as possible. We certainly want to help them with their financing but we need to make sure the loan makes sense for them.
Q. What loan options are available to buyers looking to build a home?
A. If they are looking to build a home, I would suggest they work with a builder that has a current established credit line. This way, the buyer will simply need to qualify upfront and qualify again at the end. That will alleviate the need for construction funding during the process. If the buyer is looking to purchase a home that needs renovation, the best options are conventional renovation loans, escrow hold backs and 203K loans.
Buyers looking to acquire a lot and build from scratch will need to qualify for a construction perm loan. Construction perms have become difficult because most lenders have made a strategic decision not to offer these loans. There are, however, a few lenders who can still offer construction financing. Buyers should inquire with their lender to see if they are available, keeping in mind that products come and go. As time moves on I expect we will see construction perm loans come back in vogue again.