Home Loan Information Home Loan Information From A Former Industry Insider

How the Lowest Interest Rates Affect Your Ability to Buy

During this time period we are experiencing the lowest interest rates in Atlanta’s history for home purchases. Add that to the abundance of homes for sale in the Atlanta area and the low demand and it soon turns into a home buyer’s opportunity like not experience in our lifetimes. Home values have continued to decline since 2007 and, according to Yale economics professor and housing specialist Robert Shiller, the end is not nigh.

For people who need to purchase a new home in the Atlanta area the numbers do line up well for the buying opportunity. The oversupply of available home listings, fixed 30 year interest rates at or near four percent, and underwriting guidelines trending toward “reasonable” it certainly is time to consider the move. Now here is some really good news: lowest interest rates results in lower monthly payments which changes the buyer’s debt-to-income ration resulting in the ability to buy more home for less money.

Debt To Income Ratio (DTI)

Debt rate is a key factor in home loan approval. When the processor or underwriter calculate the applicant’s actual debt ratio they compare all payments included on the credit report against all verified income as displayed as adjusted gross income on the applicant’s federal tax returns with a couple of small caveats. For most individuals calculating DTI is rather simply dividing monthly expense by gross income (See the graphic).

Here is how the debt ratio is affected by interest rates. Using a home loan amount of $300,000 let’s look at a table that shows the monthly payment (principle and interest) based on a range of interest rates from 4% to 8% and it should become self evident. Let’s use the magic DTI ratio of 45% meaning a maximum of 45% of your gross income may be obligated for monthly payments. In fact many loan programs since the collapse of sub-prime lending require a maximum DTI of 45%. See the image for a self-explaining example of what happens on a $300,000 as the interest rates begin to rise.

Affect of lowest interest rates on buying power

It becomes quickly obvious that as interest rates rise the buyer qualifies for less home. This is the primary reason today is a very good time to buy because rates are incredibly low (and will not stay that way) and home values are “in the tank” (and will not stay that way).

Call me today and let’s talk rates, cost and effect on your buying power.

I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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