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4 Ways to Help Buyers Prepare for Higher Mortgage Rates

September 23 2013

nar 20130923 rebac homeAfter years of historically low mortgage rates, home buyers are seeing the tide turn and wondering how much higher rates will inch up. What advice should agents give them?

1. Plan ahead.

In many markets, higher rates have arrived in tandem with inventory shortages, forcing buyers to think harder about ways to improve their negotiating position. The best first step? Encourage buyers to shop for a lender and secure pre-approval on a mortgage before shopping for homes.

Of course, this will be more difficult if a buyer has any blemishes on their credit history. Even though higher interest rates could dampen refinance activity and free up more money for new mortgages, lending standards are expected to remain tight. Help buyers resolve any credit issues early to avoid future disappointments.

2. Submit a winning offer.

In a rising rate environment, time means dollars. Encourage buyers to consider the potential cost of having their offer rejected and needing more time to find and submit a winning bid on another property.

Viewed this way, a buyer may prefer to adjust their negotiating position and make their offer more attractive. For example, consider telling a seller that you'll accept a higher mortgage rate if rates change before you're able to lock. Sending a signal that you won't back out of a contract could tip the scales in your favor—and may ultimately cost much less than playing hardball while rates creep even higher.

3. Anticipate adjustments.

No one knows where rates will head next, so it's important look at ways to work around potential hurdles. If rates do edge up, does it make sense to pay points to buy down the rate? Does extending the term of your loan bring the payment into a more comfortable range? Help buyers crunch the numbers and evaluate their long-term goals so they can make any necessary adjustments and still feel comfortable with a Plan B.

4. Don't forget the big picture.

Even though home buyers are rebuffed by the prospects of higher interest rates, help them gain broader perspectives with a chart of long-term interest rates over the past 50 years. On a historical basis, rates are still quite attractive. Further, in most markets, buying a home is financially preferable to renting. But economics isn't the only reason homeownership is still a top priority for the vast majority of Americanstop priority for the vast majority of Americans.

Understanding home buyers and representing their housing interests is what an Accredited Buyer's Representative (ABR®) does best. Through specialized training and ongoing resources focused on the latest trends and concerns of home buyers, ABRs® earn distinction in their market and add more to their bottom line. In fact, NAR research shows that REALTORS® with designations earn nearly twice as much as those who don't. Learn more about the ABR® designation at REBAC.net.