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HOW BUILDERS AND LENDERS ARE COMBATING RISING
HOW BUILDERS AND LENDERS ARE COMBATING RISING INTEREST RATES
by Carol Rich
Since January, the Fed has been raising interest rates — the biggest hikes since the mid-90s — to try and reduce inflation. These increases are tangibly affecting consumers, impacting everything from car loans to credit cards. Higher rates are also affecting the housing market — the average rate on a 30-year fixed mortgage has risen from 3.2% at the start of 2022 to 5.6% as of July 28.
“While the current rates are still well below the historic average, many consumers may not see it that way and our industry is going to have to make sure consumers know that there are plenty of options out there to meet their needs and provide the opportunity to own a new home,” says Jon Melchi, executive director of the BIA.
Builders have added rising interest rates to the array of challenges they are now confronting.
“With the rising interest rates, the supply chain and labor issues, builders are combating quite a bit since the onset of the pandemic,” says Jane Arthur Roslovic, CEO, cofounder, Treplus Communities LLC. “Additionally, the demand for all types of housing that is needed makes for a perfect storm. We can’t build fast enough but these three factors do not make it easy to do it profitably. We have to evaluate each deal to make sure all of these numbers work and we are confident in our absorption projections.”
Vice President of Park National Bank, Scott Green, notes that well-established banks, like Park National Bank, have weathered many cycles over the years. “We stick to a fundamental lending practice that has been consistent in rising and falling interest rates,” he says.
“With inflation becoming an increasing concern for many individuals and businesses, our approach remains the same: Listen to the needs and aspirations of our customers, provide solid advice that has withheld the test of time and be a financial partner who helps navigate the short-term volatility with an eye on the long-term success of the customer,” says Green. “We’re predictable and consistent in a time that may be anything but predictable and consistent.”
Lenders are finding ways to help borrowers deal with the rising rates. Among the tools in their arsenal: Depending on the individual borrower’s situation, banks and mortgage loan companies may recommend shorter loan terms, for example a 10-year loan.
Or they may crunch the numbers with their borrowers to see if purchasing mortgage points, also called discount points, would make sense for them. According to Bankrate, it may be worth it to pay points if the borrower will be staying in the home long enough to recoup the prepaid interest.
CNBC notes that some national mortgage lenders, such as SoFi, are getting creative and offering lending benefits that would offset some of the higher interest consumers will pay, such as cash back offers.
Lenders are counseling consumers to take positive steps to raise their credit score before applying for a mortgage, such as paying down their debts. To reflect those changes quickly, loan officers can use rapid rescoring — a process that updates a borrower’s credit score within days as opposed to months.
Mortgage lenders are prepared to give borrowers information on loan types they might not have originally considered but that could lower their monthly payments. “I believe we are going to have to place an increased emphasis on lending options for homeowners beyond the traditional fixed loan,” says Melchi.
According to CNBC, an adjustable-rate mortgage (ARM), can give borrowers a break during an introductory period, lasting anywhere from three to 10 years, when interest rates are locked in at a rate cheaper than a fixed-rate loan. However, the interest you pay with an ARM fluctuates over the course of the loan — and borrowers risk higher monthly payments after the introductory rates expire. Another option: interest-only mortgages, where you just pay interest for the first several years of the loan. These might be a good choice for borrowers who intend to live in their home less than 10 years. To come up with the best solution, lenders base their recommendations on the borrower’s specific circumstances. “With rising rates and rising property prices, the amount a borrower can qualify for has been impacted in many instances,” says Green. “We want to listen to our customer’s needs and understand the entire financial picture, not just the mortgage. Then we can find custom solutions to meet the short and long term needs of our borrowers.”
Collective House, a new home builder in central Ohio with roots in the Lifestyle Communities organization, has a unique offering: “The ability to close on a new construction home without a construction or bridge loan!” says Collective House’s Managing Broker and Realtor, Brooke Stuart.
“We allow our buyers the opportunity to use regular financing and close on their new home once it is completed and move in ready,” explains Stuart. “Our buyers can also lock in their rate with our preferred lender for up to 365 days with a free float down if rates lower through their build process. This allows buyers a truly simplified buying process from ease of financing, to selecting from our professionally designed packages, to full visibility throughout their home build process.”
No matter what the financial landscape is — whether interest rates are high or low — a strong working relationship between the homebuyer and their builder and lender is the x factor in any successful mortgage loan process.
“We value the relationship more than the transaction,” sums up Green. “In some cases, that might mean they stay in their current property and remodel or add on instead of buying a new property. For others they simply accept the economic environment for what it is and make adjustments in other parts of their budget. Each customer’s situation is unique and we take the time to listen, advise and plan with the customer. We’re in it together.”
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(614) 595-0592 abenton@fcbanking.com NMLS#: 271684
Natalie Moore
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Nancy Garrabrant
(740) 272-1348 ngarrabrant@fcbanking.com NMLS#: 728209
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BIA Sales and Marketing Council Event Round-up
The BIA’s Sales and Marketing Council (SMC) organizes fun events throughout the year designed to help you connect with other BIA members. This summer, builders and associate members networked at two stellar events: the Luau Networking Event hosted by Collective House Realty at Glacier Point (held June 16) and the Christmas in July Party at Custom Distributors (held July 19).
