How to Get 4% Interest Rates|Rapid City Real Estate News 9/27/2022 with Christian Morrison

Hey guys! What's up? 

Welcome back to Rapid City Real Estate News. If you don't know me, I am Christian Morrison. I am a local realtor here in the Rapid City/Black Hills area. I do these videos once a week and a bunch of other video content, just to help people looking in the area. Real estate is a hot topic, everybody talks about real estate, so this kind of helps ease some of that, give you something to talk about around your friends, whatever you want to use it for. So hopefully it is useful for you!

I am going to do something a little bit different this week. Typically I go over the numbers, talk a little bit about my opinion on what is happening in the market, things like that. I'll hit on that a little bit, and all the numbers will be below in the description of this video no matter where you are watching it. Today I am going to get into something I have been thinking about, something I have been doing with clients, something that may be useful for you. I am going to talk about interest rates right now. 

So interest rates have jumped up extremely high. In the last couple weeks, they have gone from around 5-5.5% to today they are at 6.7%, so almost 7% interest rates. Now that has definitely made the market slow down quite a bit, especially in really big metropolitan areas, it's been hit the worst, it seems like. Here in Rapid City we have had a slowdown for sure, not as big as some other areas, but definitely a slowdown as well, I personally don't look at this as a bad thing, I look at it as a good thing, especially if you are out there trying to buy something, this is going to give you options. Stuff is still selling, I showed a house yesterday that is in the luxury price point, so above $700,000, and there was only one showing available for the day, it was booked all through the day. So stuff is still busy, people are still out there shopping, stuff is still going under contract, but it has definitely slowed it down. So, there is going to be stuff that sits out for a little bit longer, I think, because people are scared of that interest rate. So, if you're one of those people out there, and one of two things: One, you are selling your house and you are scared because interest rates are so high that people aren't going to want to buy it, this is going to be useful for you, or if you are a buyer going out there wanting to buy something, but interest rates are too expensive, so it is inhibiting your ability to buy something in your price point that you like, this is for you as well. 

So, we are going to talk about buying down interest rates. Some of you have heard of this, some of you haven't, so I am going to explain it like you have never heard of it. Buying down interest rate, or buying points, or discount points, whatever they call it, everybody calls it different things. In a nutshell, you're going to prepay for interest up front, so if your interest rate is whatever percentage, you can pay a certain amount of money at closing, to get your interest rate buydown, to get lower. Lets just say it is at 7% right now, typically when you pay one discount point, it is going to equal 0.25% interest. The way the amount is decided on how much it costs per discount point, so per 0.25% interest, is dependent on how much your loan amount is. So, just from my knowledge, things I've read, and done in the past, I believe I'm correct on this, but dont 100% quote me on this. I could be off by some numbers here, but I am pretty close for sure. If you are buying a $500,000 house, and you are planning on putting $100,000 down, your loan amount is going to be $400,000, so that is the amount you are going to pay based on. So you will pay 1% of your loan amount, so whatever your loan amount is, 1% of that. So in this case that we are talking about, it is $400,000, so for every .25%, you are going to pay $4,000. So, a couple things here, a couple ways to go about this, if you have the cash and can do it yourself, amazing! You can buy that down, every full percent would be 4 discount points, so in this scenario, you're looking at, if you want to pay down a full percert, you would be looking at, what is that? $16,000. $16,000 per percent that you want to buy down. You can do the math on how much this is going to save you over time, but a lot of scenarios it is definitely worth it to buy down this interest rate, a percent-two percent, and that is a lot of money if you don't have that cash to spend on it, but if you do, i think it is definitely worth it for the long run. 

Now, another way to do this, to buy down the interest rate, is you can get the seller, or if you are the seller you can offer this, a credit toward buying down your interest rate. This has happened a lot in our market. I have done it with a seller I had, we have offered it. I've done it with buyers, we've asked for it. So especially if you see something that has been sitting on the market for a while, you're a buyer, and you think that there is a chance you could get this, you can make an offer, you can put it in the offer, that you want that done. I believe that the seller can only contribute up to 6% of the purchase price, in credits, to the buyer. I believe that is correct, which is quite a bit of money honestly. If you are looking at a $500,000 home, 6% of that is a huge number. With that being said, you could ask them potentially, to buy down 1% of your interest rate. So if we are at 6.7% right now, you could ask them for the amount of credit you need, whatever your loan amount is, in this scenario it would be $16,000 for the $400,000 loan amount, I want $16,000 in seller credits, from you, on my offer, to buy down my interest rate by 1%. 1% may not sound like a lot, but it is a ton on a payment like that. So let's actually do the math on that instead of just saying a ton. If you take that loan amount, let me pull it up on my calculator here, take the loan amount of $400,000, with the 6.7% interest rate, your loan payment with taxes and insurance estimated here is $3,248 a month at that 6.7%. If you change it to 5.7%, your payment goes down to $2,989. So, massive difference there as you can see, you are looking at $300 a month or so, could be a little more, could be a little less, around $300 a month less on a payment by that one discount point. So now you are going to do the math, on how long you are going to stay in the house, if that would be worth it for you or not, but if you are getting it from the seller, in this scenario, it is definitely worth it for you, and it saves you $300 a month, thats a huge difference on a payment, and you can do this calculator, and people ask me this all the time, what to use as a mortgage calculator, shockingly, I find the easiest to use, and good numbers, not 100% accurate but close, if you just type in mortgage calculator, and use google’s calculator, just make sure you click on include taxes and fees, use their calculator, it is really accurate, but the only thing I don’t find accurate on there is that the interest rates are random. I don’t know how they choose them, or how they calculate what those are, but the interest rates are never correct on there, they are either way too high or way too low. So find the correct interest rate, but other than that it is a really good calculator.

Now as a seller, from the sellers perspective, I'll give you a quick story, I had a client that, the house, we put it on the market, right at the height of the last mortgage interest rate hike, which made our house sit there a while, we didn't know it was coming, so what we did is we offered a $5,000 credit, this is a lower price point house, we offered a $5,000 credit to the buyers to buy down their interest rate, or whatever they wanted to use it for, you could use it for something else if you wanted to, but as soon as we offered that and educated the buyers on it, you can't just put it out there, people don't understand it, but as long as you educate the buyers on it, and explain how much it can help them save money, like in this scenario, it paid down .5% interest for them, maybe a little bit more than .5% interest, and it changed them from not being able to buy the house, to being able to, this one buyer in particular, and that's all you need is one buyer for your house, so what they thought was out of their price range because interest rates, ended up being the house they got to buy, it was a better house than they thought they could get, and they were super pumped about it. The sellers were pumped because they got to sell the house. Rather than drop the price by $20,000, just offer the $5,000 credit, it costs you less as the seller, and still cut the buyer of the house and it was a win-win for everybody. So as a seller you can think about that. That is one strategy to get the house sold right now, if it is something that has been sitting there a while, or you are thinking about putting on the house, I would almost consider, depending on the price point, where it is, if you think it will sell right away, there is a lot of factors to go into play. If it is still the right house, right neighborhood, right price point, it is still going to sell right away, and you probably don't need to do that. But a lot of other houses may need to do something like this, to help it move right now. 

Just some ideas for you guys on that. The market from what I have seen, like I said, has definitely got hit a little bit with this, it's not insane, I mean stuff is still selling, I am still showing properties, so stuff is still selling out there, and stuff is still going under contract. But, it has definitely hit, no doubt about it. So we will see where this takes us, see if it still keeps going up, or not, but in my opinion right now, it's probably still a good time to sell. I really think it is, I think it's still great, especially if you want to be creative, offer some discount points, or whatever, and make that buyer more excited for your house in particular. If you are out there buying, I would definitely use this strategy to help you out! 

Last thing for you guys, this coming up Thursday, two days from now, Thursday night I am doing a home selling webinar, if you are interested in selling your house right now and you want to go through the strategies, of doing it, with or without an agent, if you want to go without an agent route, or you want to go with an agent, but you want to know exactly the steps on what is necessary to sell your house, I'm hosting a webinar this Thursday at 6:30pm, I will put the link to it in the description. I have a few spots left, I only let 15 people into these, so I have a few spots left if you are interested in that. If it is already full, it wont let you sign up, so you will know then. But yeah, last little plug there, thanks so much for watching guys, I'll see you next week, peace!