Doctor Mortgage Declined?

Doctor mortgage declinedWas your doctor mortgage declined and you are not sure what to do or where to go?

A few years back I received a call from a young man who was noticeably upset. His breathing, his tone, and his words were scattered and erratic.  As he tried to regain his composure he told me he had just received a call from his loan officer who informed him that the underwriter had just declined his doctor mortgage loan.  The young man was an incoming resident physician who was literally in the moving truck with his wife and two kids; they had expected to sign closing documents the next day and move into their new home before the weekend.

Sadly, we receive an unfortunate amount of business from clients that are quickly “pre-approved”, who are later declined once the facts of their application reach a mortgage underwriter’s desk. Remember this – mortgage loan officers are paid when loans close, so they become conditioned to saying “yes”.  The mortgage underwriter is paid to meticulously review all of the loan documents and ultimately say “no” when anything is outside of guidelines.  Truly, the underwriter is the gatekeeper.  They are risk control for the bank and they are literally paid to say no if certain risk factors are present.  You should know this and I recommend you INSIST an underwriter review your application and employment contract before making an offer on a home.

Having an underwriter see your documents for the first time as the boxes are being loaded into the moving truck is a recipe for disaster. Unfortunately, that is how the majority of doctor mortgage companies do it.  It all comes down to cost. It is expensive to pay an underwriter to review applications for people who might never find a home, might decide to rent, might decide to go with another lender, etc.  It’s a line item cost most doctor mortgage companies can simply do without, regardless of the cost to the families it impacts.

So what can you do? 

  1. Do your homework and base your decision on more than just a rate quote.  Clients tell us they are quoted one rate and then when they find a home the rate changes. This bait and switch tactic happens regularly, so you need to make a decision based on more than a verbal quote.
  2. Google “INSERT BANK NAME mortgage reviews” and you will find hundreds if not thousands of reviews by actual clients that will tell you what the experience of working with that lender is really like.
  3. Insist on a full Credit and Income Approval rather than a pre-approval. This approval should be reviewed and approved by an underwriter, not just a loan officer (who is paid to say yes).
  4. Make sure your lender can move quickly.  Today’s real estate market is an intense seller’s market.  If you cannot compete on speed to close, your offer will likely not be accepted over the competing offers.  If your doctor mortgage is already Credit and Income Approved, it will help you close quicker because the heavy lifting is essentially all out of the way at that point.

What can you do if your doctor mortgage is declined?

The good news is that not all doctor mortgage loan companies have the same underwriting guidelines; in fact they vary quite a bit from company to company. These doctor mortgages and physician home loans, as they are also known as, have different investors who buy them and as such the guidelines have substantial variances.   Find a list of doctor mortgage lenders and start making calls.

  1. Call the new potential lender and be totally upfront about the situation and ask if they have a solution for that issue.  Get out all the dirty laundry up-front, tell them everything that could be a problem.
  2. Ask them to commit to a closing date if you get them your full file today.  This is going to be key; you will need to find someone who can move insanely fast if you are going to keep your deal alive.
  3. Research lender’s reputations and read their online reviews.  You do not want to find yourself in the same mess you did before.  It’s important this lender has a solid reputation with past physician clients and is experienced with doctor mortgages.  Google “INSERT BANK NAME mortgage reviews” and you will find hundreds if not thousands of reviews by actual clients that will tell you what the experience of working with that lender is really like.
  4. Ask them if you can pay extra for a rush appraisal, which always has to be re-ordered if you switch lenders.  Ask them to go with the fastest turn time possible regardless of cost.
  5. When the lender requests documents or other information, deliver them within hours of their request.

I hope these tips help you avoid the landmines for a flawless home purchase! Contact our doctor mortgage expert Josh Mettle at 385-355-2130 or here. We’d love to hear from you!

Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNAs, and physician assistants.  You can enjoy great physician real estate and mortgage advice here or by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.

Copyright© 2017 eJLM LTD.  All Rights Reserved

*A pre-approval does not constitute a full loan approval or a commitment to lend. Full approval is subject to underwriting approval based on program guideline requirements including but not limited to a satisfactory appraisal. 

3 Reasons the Housing Market is NOT in a Bubble

Love this post from the blog Keeping Current Matters and wanted to share it for our readers who are in the market for a doctor mortgage or a CRNA mortgage.

With housing prices appreciating at levels that far exceed historical norms, some are fearful that the market is heading for another bubble. To alleviate that fear, we just need to look back at the reasons that caused the bubble ten years ago.

Last decade, demand for housing was artificially propped up because mortgage lending standards were way too lenient. People that were not qualified to purchase were able to attain a mortgage anyway. Prices began to skyrocket. This increase in demand caused homebuilders in many markets to overbuild.

Eventually, the excess in new construction and the flooding of the market with distressed properties (foreclosures & short sales), caused by the lack of appropriate lending standards, led to the housing crash.

Where we are today…

  1. If we look at lending standards based on the Mortgage Credit Availability Index released monthly by the Mortgage Bankers Association, we can see that, though standards have become more reasonable over the last few years, they are nowhere near where they were in the early 2000s.

Mortgage credit availability index

  1. If we look at new construction, we can see that builders are not “over building.” Average annual housing starts in the first quarter of this year were not just below numbers recorded in 2002-2006, they are below starts going all the way back to 1980.

Housing starts 1st quarter

  1. If we look at home prices, most homes haven’t even returned to prices seen a decade ago. Trulia just released a report that explained:

“When it comes to the value of individual homes, the U.S. housing market has yet to recover. In fact, just 34.2% of homes nationally have seen their value surpass their pre-recession peak.”

Bottom Line

Mortgage lending standards are appropriate, new construction is below what is necessary and home prices haven’t even recovered. It appears fears of a housing bubble are over-exaggerated.

If you are a physician looking to get a doctor mortgage or a CRNA looking for a CRNA mortgage, signs are the market is solid and it is a good time to buy a home. Please contact Josh Mettle at 385-355-2130 or here. We’d love to help you achieve your dream of homeownership.




Will higher prices and rates snuff out the real estate market?

A recent hot topic with clients has been about waiting out this hot market rather than buying in 2017. Their reasoning is that higher interest rates and home prices will ultimately snuff out the real estate market and prices will likely come back down. If you are a physician who is thinking about buying a home, you have likely wondered about this.

There is significant fear about current home prices. Clients don’t want to get caught buying at the top.

So I decided to do some research. I wanted to know:
Is housing affordability getting out of reach for most families and should you hang tight and wait it out?

Thankfully, there is an index that tracks this. It’s called the Housing Affordability Index and it measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home. This index is based on average home prices, current interest rates, and national income data. A value of 100 means a family earning a median income earns enough to qualify for a mortgage on a median priced home; anything above 100 means the family has more than enough to qualify. The higher the score the easier it is.

Check this out – going back 27 years to 1990 we can see that housing is more affordable today than it has been during any period other than the great recession years (where interest rates were 3% and foreclosures were discounted significantly). Also note how low the index got in the years before the crash: 2005 to 2007 saw an index reading below 120; I would consider this the danger zone. But today the index reading is over 160, well above the unaffordable danger zone.

What does this mean?
1.  It means that incomes are increasingly in line with housing costs and mortgage payments nationally.
2.  There is NOT a lack of housing affordability and it’s unlikely you will see lower home prices in the near future.

Housing Affordability 1990 to today - doctor buying home

Source: KCM Blog

When the time is right, I’d be honored to help you, your colleagues, friends, and family with excellent mortgage advice.

P.S. One of the most frustrating things for buyers in this market is the challenge of getting their offer accepted when there are multiple offers on most properties. We’ve developed a strategy to help buyers and their Realtors get their offer accepted over the others. We’ve found that our clients are over 200% more successful when implementing this system. If you are interested in finding out more about how we do it, we’d invite you to give Josh Mettle a call at 385-355-2130.

Match Day Is Here… What You Need To Know About The Real Estate Market and Doctor Mortgages In 2017!

Congrats!  You have matched and the adventure of residency awaits you.  Now you need to figure out where you are going to live and fast!  Here’s what you need to know to successfully navigate the landmines and have a flawless home purchase in 2017.

Your primary challenge is going to be finding a home. As I write this post there is only 3.6 months supply of homes on the market nationally. That means the pace of monthly sales would completely eliminate the supply of listed homes for sale in less than 4 months (if no new homes were listed for sale).  Anything less than 6 months supply is considered a sellers market.  Many areas of the country are in an extreme sellers market, which means sellers dictate the terms of the deal and the speed they want the transaction to close.  You either have to agree to those terms or they pass you up and find another buyer, often a cash buyer, who can meet their terms.  This can be a monumental challenge for many doctor mortgage lenders and you, their perspective client.  It is imperative you find a lender than can move fast and close in less than 30 days.

Low inventory = need fast closings!

There are a couple reasons why doctor mortgage loans tend to move slower than conventional mortgages.  First, most physician and doctor mortgage loan companies are large national (think too big to fail) banks and they are layered with bureaucracy, government regulations, antiquated IT systems, and status quo (good is good enough).  This is similar to the level of care you might expect to get at the largest hospital systems in New York or Los Angeles on a busy Saturday.  They mean well, but they can only do what they can do with the resources they have.  Nimbleness and speed to respond might not be how you would describe them.

Takes other lenders 51 days ave to close loans

The fact is, many of the larger banks that are the purveyors of doctor mortgage loans simply cannot keep up with the fast paced real estate market. Check out this list of the top ten hated companies in the U.S..  Not one, but two of the biggest banks in the country make that list.  I can tell you we receive an unfortunate amount of business from physicians that are declined the week of, or worse, sometimes several weeks after their settlement deadline.  It’s sad but true.

What can you do to protect yourself?

1.  Choose a Mortgage Professional Who Can Educate and Truly Guide You

If you were to follow just one of these steps, the most important is to find a professional loan officer experienced and proven to work with doctors. The ideal loan officer should have unique physician home loan programs, which have more liberal underwriting guidelines making it easier for you to qualify and ideally provide you with a better experience.

2.  Verify Your Lender’s Reputation

You can protect yourself from this by carefully reviewing the client experiences of your fellow doctors. Do some Googling about client experiences, ask for references, and request your lender put in writing how long it takes on average to close their physician home loan clients.  This is rarely thought through in detail but can make all the difference between you getting a home and the home getting away from you.

3.  Obtain a Credit and Income Approval

A Pre-Approval is simply not enough for you to gamble your family’s new home on. You must get a full Credit and Income Approval if you want to be certain you won’t be surprised the week of closing. The importance of getting all credit and income documents into the hands of an underwriter as early in the process as possible cannot be overstated and is frequently missed.

The thing to keep in mind is that loan officers are paid to say YES, while underwriters are paid to say NO.  They are the gatekeeper and the person who will give the final authority for your loan to close.  So ask yourself, do I want to meet that gatekeeper while I’m house hunting or do I want to meet that gatekeeper when my home is boxed up and the Penske is on the way?

4.  Carefully Select Your Realtor

Steer clear of real estate search websites as a means to locate your next Realtor. Keep in mind those Realtors pay for the opportunity to market to you, which in many cases is indicative of Realtors who don’t have a lot of experience and don’t have a lot of referrals coming from past clients.

If you are relocating, you are looking for someone with relocation, ideally physician relocation experience. You should be able to find such realtors through an online search, via referral from the medical department or practice you are joining, a colleague who has recently relocated to the area or through a referral from a loan officer specializing in physician loans.

5.  Be Proactive and Stay in Communication

Take responsibility for the deadlines you sign on your purchase agreement and ensure you don’t lose your earnest money. This is truly your responsibility and all you have to do is to be aware of your inspection, appraisal, financing and settlement deadlines.  I find most home buyers rarely even know the deadlines in a purchase agreement even exist.

A physician home loan or doctor mortgage loan can be a powerful tool to help you into a home with the least amount of cash possible, sooner than most conventional loans; in many cases with less overall expense as you will likely avoid mortgage insurance. This does not mean they are the right prescription for everyone.  Finding a trusted mortgage advisor that can help you navigate the mortgage and real estate process is ultimately going to offer you the highest probability of successfully closing on your new home.  Good luck!

If you would like more information about physician home loans, you can download our free eBook and request a client consultation here:

Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants.  You can enjoy great physician real estate and mortgage advice here or by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here. Copyright© 2017 eJLM LTD.  All Rights Reserved

Fundamentals Pushing Real Estate Prices Higher. Can A Doctor Mortgage Loan Help?

Most often our clients come to us for advice about doctor mortgage loans, but from time to time those same doctors also need to know about what is happening in the real estate market and is it the right time for them to buy.  There is an element of fear in many of the conversations I’ve been having with doctors recently stemming from current real estate values, which have just recently returned to pre-crash valuations in many areas of the country.

Our doctor clients are aware of this and they are very astute in wanting to avoid making the same mistakes as those who bought right as the bubble was peaking in 2006 to 2008.  So where are we today in the real estate cycle and how can a doctor mortgage loan help?

Let’s take a look at a few of the fundamentals that are driving the real estate market higher.

2016 was an interesting year, with massive surprises including the Trump presidency, Brexit, and a stock market that continues to grind higher to new all-time records. How these events and the events ahead might ultimately impact home values is beyond our crystal ball; but we do have some FUNDAMENTALS to share with you. Please feel free to forward this analysis to anyone who might benefit.

Last year, U.S. housing was up 7.1% nationally. That is an incredibly strong national number considering we are nearly 10 years into the recovery.  One of the points I bring up to our doctor clients, is that the current growth is very different than the pre-bubble growth.  The pre-bubble growth was fueled by FAKE demand.  That FAKE demand was from liar loans (stated income, stated assets, stated employment), it was from investors who were buying dozens of homes not to rent as a part of a long term plan, but with the hope the property would go up 25% in 6 months and they could flip the house. It was also fueled by negative amortizing loans that enabled speculators to buy lots of properties, make ridiculously low payment and hope for appreciation.  This FAKE demand then spurred builders to build four times the historic national average of new homes, thus resulting in a massive supply problem, right when buyer demand was waning due to the mortgage meltdown and these exotic loan products going away.

It was the perfect storm fueled by FAKE demand and lots of greed.  But ask yourself this question, is that what is fueling this real estate market? Not at all! This market is real buyers, with real jobs, real income, real down payments, looking for housing for their families.  So our home valuation levels are approaching all time highs, but the fundamentals are totally different and our clients that have used doctor mortgage loans to buy homes for their families in the last few years are doing really well.

Let’s go back to the 7.1% appreciation annually in the U.S.  last year and see how that might have effected you. If you had bought a $250k home with 5% down in December 2015, your annualized return on investment was 142%.

That’s right, your $12,500 down payment is your investment, but the entire $250k home appreciated 7.1%. That is the magic of owning real estate; not only does your cash down payment appreciate, the entire value of the property appreciates.  We like to think a doctor mortgage loan can help you because our mortgage loans for doctors allow you to put down as little as 3% while at the same time completely avoiding mortgage insurance.  That means you can start owning real estate and benefiting from appreciation, while retaining more money to pay down student loans or to start investing for retirement.

Actual Year Over Year Changes In Price

Will housing continue to appreciate?  That is the ultimate question our doctor clients want answered.  I believe if you ignore the noise out of the media and look at the fundamentals, it looks like demand will continue to outpace supply in the years ahead.

The Joint Center of Housing Studies just came out with its household formation report. Between 2005 and 2010 the U.S. averaged 680,000 new households per year (net migration into the U.S. and kids moving out on their own forming new households). From 2010 to 2015 that number grew to 890,000 new households. Between 2015 and 2025 momentum will build with an estimated 1,360,000 new households per year.

Where are all these new households going to live?  Sure, some of them will rent, but eventually everyone tires of annual rent increases and the neighbor’s hip hop music at 2am…

Average Annual Household Growth

Each year between now and 2025 the U.S. will add 1.36M new households, in addition to the previously formed households; they will continue to fight for the best real estate in our local communities.  We are already seeing this take shape, take a look at the national supply of homes for sale, any reading under 6 months’ supply is considered low inventory (supply), we are below 4 months currently, which is extremely low supply of available housing.

So what does this mean? 

Months of Inventory of Homes

It means beyond the noise in the media, the FUNDAMENTALS point to more potential buyers and increased demand between now and 2025.  This comes at a time where supply is already extremely low.  My guess is your return on investment might not be 142% annually going forward, but it’s likely to do pretty well.

If you have questions regarding doctor mortgage loans and what you might qualify for, I’d encourage you to contact me directly at 385-355-2130 and I can give you a personalized overview of how a doctor mortgage loan might work for your situation.

Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNAs, and physician assistants.  You can enjoy great physician real estate and mortgage advice here or by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here. Copyright© 2017 eJLM LTD.  All Rights Reserved

Our Core Values


Core Values

We’d be honored to answer any questions you have. Please write to us here  or call Josh Mettle at 385-355-2130. We love hearing from you!

Should I buy a bigger, more costly home? How do I decide?

Josh Moving Up Analysis

This is a Total Cost Analysis that I put together for a client that was contemplating moving up. And I’d like to have more of these discussions. But the truth is I need your help. I’d like to walk you through the presentation and at the end I’m going to invite you to let me know  if there’s any clients that you have that would like to have a similar type of analysis done for them.

In the top left hand summary section this particular client had a current mortgage balance of $356,000 first and second mortgage with an estimated balance of about $356,000. You can see in the bottom left hand section there we’ve highlighted their current mortgage to be paid off in 18 years, their second mortgage will be paid off in a little over 12 years, a little less than 13 years.


So we said, okay let’s potentially look at refinancing, but let’s also look at what happens if you moved up to that $600,000 home, the price range that you mentioned you found some homes that were very interesting. And then we use the proceeds from the sale of your current home towards down payment and we ran a couple of different down payments scenarios. We looked at a 20% down on a $600,000 home, a 10% down and 5% down.

Now the interesting part of this tool and what we can do with this forecasting, is it allows us to look at the potential implications over the long term. In the bottom right hand corner what you can see here, and I’d encourage you to click into the “More Info” tab, but what you can see once we ran this analysis is that under any of these scenarios, the client ends up somewhere in the neighborhood of $250,000, a quarter of a million dollars more wealthy.

Net Worth

How did we model this? First, by looking at the potential future value of the home. So we took a $600,000 home at a 3% appreciation rate, fast forward that value over 20 years subtracting the mortgage value at 20 years – there’s equity. We also noticed that at the 20% down scenario, the client saved $535 a month, which could be invested and if we calculated a 7% rate of return over the next 20 years there’s going to be a pretty nice asset value there in addition to the home value.

In the 10% down scenario we did a similar type modeling. we used the $164 a month in savings, we added that to their investment account. Plus, we note that instead of putting $120,000 down, they are only putting $60,000 down, which could be invested. We did the same thing for the 5% down and if you click into the “More Info” tab in the bottom right hand corner, you’ll get a really good idea of how we model that.

More Info Net Worth

You can also click into the “More Info” tab in the Summary section and then once you are in the Summary section you can go over to the Reinvestment Strategy.

More Info Summary

We would be honored to do some of these presentations for your clients and if you can think of somebody who could use this type of value, please don’t hesitate to introduce me. Feel free to call 385-355-2130 and I’m happy to do an analysis for your clients.

Rent vs. buy case study

Hey guys! I just created this exact analysis for a couple of clients of mine in California and we called it the Rent vs. buy case study. I took their names off, obviously. But the numbers were staggering and I wanted to share it because I think it can impact so many of our clients that aren’t thinking long term. I think the decision to buy or rent comes down to the immediate payment on a month to month basis, but they fail to look from the longer term perspective of 5 to 10 years.

So in this case study what we did is we took the comparable rent, or what they thought they’d be moving into in terms of rent and we gave them three different financing options in the top left hand corner.

And the nuances of the financing options will sort themselves out, it’s really beside the point, you can click in the “More Info…” tab. Here’s what’s important. The bottom two sections allow you to analyze the amount of rent that someone is going to pay over the next 60 months in comparison to what they are going to pay down on their mortgage. I’d encourage you to click into the “More Info…” tab there.

In the bottom right had corner, it allows us to anticipate a 4% real estate appreciation rate, extremely conservative in California. It allows us to calculate what the mortgage balance is going to be 10 years down the road after they’ve paid off $100,000 plus in principal. And then subtract those tow numbers and tell us what our potential equity position is.

So, the decision that we’re making today is, do we want tax advantages and to put ourselves into a situation where we’re going to move a half a million dollars in equity in 10 years, or do we want to rent. And there’s a case for both. If someone thinks they’re going to be moving in the next couple of years, if there’s unexpected expenses in the future there may be a case for renting. But we should analyze this and we should think through the decision in a longer term perspective.

Now, one more thing before we leave, top left corner, what’s so cool about this is that there rent is going to go up from $3500 to a mortgage price of about $4200. But, they’re going to get $1000 per month tax break, they’re going to pay $900 per month in principal reduction. So in essence, they are taking money out of their checking account but they’re going to put about $2000 per month back into their savings account – “equity”. And if you look at the net payment, it’s actually substantially cheaper to buy vs. rent. Of course there’s going to be some maintenance and some fix-ups and you need to allot for that, but the analysis I think is powerful.

If this is something you’d like us to do for you or for your clients, we’d be honored to do it. Please call 385-355-2130 and talk to Josh Mettle and we’ll get you set up. Or you can shout out to us on our page.

Will higher mortgage rates slaughter the real estate market?

Thought you might be asking the same question that many of our clients are wondering: “What is the impact of higher rates on home values?” Let’s start with a quick quote, which I think sums it up nicely.

The (rise in rates) was considerable, but no one should be all that alarmed, nor fear that the housing market will come to any kind of abrupt standstill.

After all, rates are only about where they began 2016, and all expectations at that time were that the housing market would be doing fine. It also bears remembering that many long-range forecasts thought that mortgage rates would be well above even these levels by this time. – HSH

But what does history tell us? Are periods of higher rates the killer of home appreciation?

History tells us that periods of rapidly increasing interest rates generally coincide with a healthy and expanding real estate market. Rates typically rise in a growing economy. With the economy expanding and more money flowing, the market will pay higher rates and higher prices for homes.  Granted it does not feel good today as a borrower to pay higher rates, but this is a sign that the economy is healthy and expanding.

Keep in mind that anything less than 6% is incredibly low for a 30 year fixed mortgage, so don’t think you have missed an opportunity to lock in low rates; simply reset your perspective. We are fortunate to see rates well below the historic averages shown below.

The alternative of course is renting, but look at the trajectory of rents since 2011! Rents continue to hit new all time highs across the country, afford you no tax deductions, and if you think about it, are like financing your housing on a one year adjustable rate mortgage.  What I mean by that is each year your rent can climb in perpetuity. Unless you live in a government mandated rent restriction area, you have no protection against a growing housing expense, where at least with a mortgage you can fix that cost with a fixed rate and payment.

Median Rent Since 1988

I’ll leave you with one more chart to consider. Below you will see how each state has increased in value over the last 12 months. With continued economic expansion, lower unemployment numbers, and more demand than supply of new homes, it is likely 2017 will be another very positive year for real estate appreciation.  Surely those who bought since 2011 are very grateful they did. 

Year Over Year Change in Price

If you, your friends, family, or colleagues have questions about financing their next home, I’d be honored to help. Please contact Josh Mettle at 385-355-2130 or if you prefer, here.

What is the cost of waiting to buy a home?

I’ve been getting a good amount of questions from clients asking about what’s going to happen with interest rates in the future, where are home values going in the future and what does that do to my buying power. So, I’ve put together this Total Cost Analysis as a case study to look at what the potential cost of waiting would look like. Please click here to watch this short presentation.

First, let’s dive into some facts. if you look at historic mortgage rates going back to the 1970s, in the seventies the average 30 yr. fixed mortgage rate was 8.86%. In the eighties it was 12.7% and in the nineties we were back in the 8.12%. In the two thousands, average range was 6.29%. So you can tell we are in an extremely low interest rate. At some point it would make sense that we’re going to revert to the mean. As an average over all of those time periods, the average 30 yr fixed mortgage rate is about 8.43%. Today we’re around 4.25% depending on credit score and a few other things, but nearly half of what interest rates have been historically over the last thirty years.

Historic Mortgage Rates

And so I think that’s an important starting point to realize that we are at a very low point. Even though we’ve seen rates move quite a bit over the last couple of months since the election.

I went a little deeper, I said let’s dive into the numbers and see what happens to home appreciation rates during periods of rapid interest rate increases. And what I found was there were four periods where interest rates – 30 yr fixed mortgage rates – increased greater than two percent in twelve months or less. Those periods were May 1983, March 1987, October 1993 and April 1999.

Many clients that I’ve been talking to are hypothesizing that with an interest rate increase in rates, prices must go down. But, guess what I found? The research shows that on average the cumulative appreciation over those four periods was 5.975%. And if you think about it, as the economy starts to heat up, as unemployment goes down, as wages start to go up, people can pay more for houses. As rates start to go up to kind of cool the economy or reach what the market will bear, you can anticipate that home prices will continue to increase.

Ave Home Appreciation

And the reason that’s so important, is to realize if we’re going into a period with higher interest rates and what history tells us is higher prices, what does that do to your buying power? I’ve put together these three comparisons to what you can expect now.

Today on a $400,000 house (with interest at 4.25%) you’re looking at a payment of about $1857. If rates go up to 5.25% over the next year and let’s just say home prices stay the same ($400,000 home), that’s going to raise that payment to $2050. If rates go up and home values go up – and I just went up by 5%, far below the 5.97% average of increasing rate periods. But, what happens to the payment? Wow, we’ve got a $700 payment increase ($2152) if our purchase price goes up 5% and our interest rate goes up 1%. So, you’re either going to pay more, or you’re going to buy less.

But what if you’re on a budget and you need to keep that payment at about $1900 a month? If interest rates go up to 5.25%, that means your buying power goes down to $365,000 and if we have homes appreciating during that period, that’s really going to push down the quality of home that you are able to purchase.

What will this cost you over ten years? It’s going to cost you $69,240 more in interest for the same house if home prices go up by 5% and interest rates go up by 1%.

Total Cost Analysis savings

I’m not pointing this out to scare you or push you into action if it’s not right for you, but it is good for us to look at history and allow it to teach us what might happen in the future and then put a dollar cost to that potential. If you have any questions, I’d be more than happy to answer them or we can break this down for you on a specific scenario or price range, we’d be honored to help you. Please call Josh Mettle at 385-355-2130 or by reaching out on our page.

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