Last weekend, I was helping a buyer make an offer on a lovely home.
The only problem was that it was a multiple offer situation and we had to have the strongest offer possible.
The buyer, Ana, was very excited about making an offer and she was ready to make an offer for a higher amount than the list price, in order to out-bid other potential purchasers.
But when we started looking at the details, we realized that Ana’s lender’s pre-approval letter was dated four weeks earlier.
Normally, a 4-week old letter wouldn’t be a big problem
Normally, a 4-week old lender letter wouldn’t have been such a big issue, but since the mortgage interest rates have been going up in the last two weeks, this could be a real factor.
The Lender letter indicated that Ana was pre-approved for a sales price up to $400,000, with an interest rate of 3.50%. That would have given Ana a monthly payment of $1,436.
But now that the interest rates were at 4.50%, to keep the same payment of $1,436, Ana’s pre-approved purchase price would have to be about $355,000.
Ana and I promptly got on the phone with her mortgage lender to review her options and to get her pre-approval letter updated reflecting the new interest rates.
Why did mortgage interest rates suddenly rise?
Mortgage Interest rates are highly correlated to U.S. Treasury bonds and notes, and usually, when bond rates change, mortgage interest rates change too.
The thing is that for the past several years, bond rates have been kept artificially stable by the U.S. Government’s Federal Reserve (i.e. “The Fed”)
Bond rates have been controlled by the Fed for the last several years
Due to the last economy recession, the US Government’s Federal Reserve has been buying bonds (and keeping their rates stable) in order to help the economy recover.
However, in the last few weeks, the Chairman of the Federal Reserve, Mr. Bernanke, made a statement that the US Government would slow down buying bonds in the near future.
Instead of this being a nice and slow warning to investors (as intended), these investors took the announcement to be a sign that investing in bonds would be less attractive and, instead of waiting for it to happen, they actually made it happen.
Investors suddenly sold their bonds (or stopped buying them). This caused a sudden change in the bond rates and it directly affected mortgage interest rates, forcing them to instantly go up.
What does this mean to you?
It means that, to avoid disappointment during your current home search, you should check in with your lender to get your pre-approval letter updated before your next offer.
That way you’ll be well prepared, and ready to compete with other buyers.
(If you would like a referral to one of the lenders who have done a really good job for many of our buyers, please see here: Mortgage Lenders)
How did Ana’s offer work out?
Once Ana got her lender letter updated, she realized that she was still pre-approved for making a strong offer on the home she loved. Due to the new interest rate, her monthly payment had gone up, but she could still comfortably afford the home.
Knowing that she had a strong offer, we also let the listing agent know that she also had an updated lender letter.
In the end, Ana got the home, and we’re pretty sure that having an updated letter gave her an edge over other buyers who hadn’t updated their letters yet.
Once you get your lender letter updated, remember also to update your email alert with properties that meet your criteria in the Home by School interactive map.
Log in to the Fairfax County Map to access the interactive map of Homes for sale by School Boundary
Once you log in, and access a boundary from the Fairfax County Map, you can get to the interactive map of homes for sale. You can create a custom search, and then save it as an email alert.
If you haven’t subscribed yet, why wait?
Downloading The No-Tears Guide to Moving to Fairfax, VA is free, and you’ll get access to our unique home-search (by school boundary).
Plus, you get the Fairfax County Real Estate Affordability Map, AND access to detailed information about each Fairfax County School boundary.