Sheri McKim is a Mortgage Lender and Branch Manager at Benchmark Mortgage in Cedar Park. She recently answered several questions for Community Impact Journal on the home buying process, including how rising interest rates will affect buyers. The following answers have been edited for length and clarity.
What role does a lender play in the home buying process?
The mortgage lender will look at the buyer’s situation, credit profile, income, all of that, and find the best loan that meets their needs.
A loan officer will be there before they find a contract, so they know how much they are entitled to. Then, once the contract is entered, the loan officer goes through the whole process – through underwriting and closing and everything, until the end.
Who is currently applying for a mortgage? Are they mostly first-time home buyers or people who have owned a home before?
I have a lot of first-time home buyers, and they find it hard to feel comfortable with how prices have gone up so quickly. So the people who actually get the houses and get the contracts accepted would be the people who have owned them before, the more experienced buyers. First-time buyers are definitely struggling in this market.
What assistance programs are offered to first-time buyers?
Currently [down payment assistance programs] are very limited. Previously, you could get [assistance with] 3%, 4% or 5%, and the loan amount will be used for the down payment and closing costs. But right now they’ve added 2% and got rid of the 5% and most of the time it’s hard to even get 4% so it’s really just 2% and 3% is all that’s available because the market is so volatile.
Sometimes there are stipulations to these programs, so it’s money they don’t need at closing, but they might have to pay it back depending on how long they’re in the house. Then there is one that is pure subsidy. It all depends on the program.
How does the Federal Reserve raise interest rates affecting home loans?
This certainly affects first-time home buyers. You may have someone who maybe even last year could have qualified at Cedar Park may have to go all the way to Hutto or go out to find something in his price range because interest rates eventually go up payments. I had a few buyers looking in December and found nothing, but now the payment for the same house, just because of the interest rate, has gone up from $400 to $500.
What will be the short-term effect of rising interest rates?
I imagine — and we are already starting to see it — that the values will start to stabilize. We won’t have as many people bidding on all the houses, so they’ll start to level off.
We have seen value increases across the board in the Austin area over the past year and a half. I’ve been in the business for over 20 years and I’ve never seen tax stocks do what they did this year. At a minimum, all homes have increased by $100,000 in tax value. I do not think so [prices] will go down because companies are moving to Texas; I just think they’ll start to stabilize.
What is the difference between an adjustable mortgage and a fixed rate mortgage?
A fixed rate mortgage will remain the same. The rate remains the same throughout the life of the mortgage until a variable rate mortgage moves up or down depending on the index to which it is linked.
The [are] different clues than the [adjustable rate mortgage] could be related to. So there’s something called a 5/1 ARM so what that means is it’s fixed for five years and then every year after that the rate can adjust every year for the rest of the term.
Who decides whether a buyer will have a fixed or adjustable rate mortgage?
What we would do is if we think it’s an advantage, we could compare the two. Right now, rates on adjustable rates aren’t much better, so there would be no reason to suggest an adjustable rate right now. But if there was a time when rates were really high and adjustable rates got lower, then someone may qualify for an adjustable rate rather than a fixed rate. Everyone is doing fixed rates right now.
Do people always refinance?
The refinancing market is pretty much dry right now. The only people who could refinance would be someone who needs to take money out of their house. Or, I have had some people refinance because they are getting divorced and need to refinance the other person on the loan. Very few people missed the boat when rates were low for refinancing.
How can home equity be used to a homeowner’s advantage?
The best way to make home equity right now would be a second lien. This way, if you have a good rate on your first lien, you don’t have to touch it. Basically, you get a second mortgage.
An equity loan could help people pay off their debts, improve their homes, pay for their education, have money for a rainy day with the crazy economy going on right now. So there are many ways an equity loan would still be beneficial.
715 Discovery Blvd., Ste. 212 Cedars Park
Note: This article is part of the annual real estate edition of the Community Impact newspaper.