Rising interest rates may imperil some borrowers trying to buy a home, experts say
MIAMI -- Mortgage rates have reached the highest level in 20 years, meaning some first-time home buyers could face a tough time trying to purchase a house.
Adilaid Davila says his dreams of home sweet home soon became a financial nightmare.
"I would never again buy pre-construction because I don't know the future," said Davila, a first-time home buyer.
Millions like him have the option to apply for an FHA loan at 3.5 percent interest or a conventional loan with an interest rate of between 3-5 percent.
Davila chose a conventional loan, putting 5 percent toward the purchase of a $390,000 house.
But he said he was faced with a 7 percent additional charge later; they claimed inflation and pandemic brought up the cost of materials.
People who seek to buy a house now they have to deal with a high interest mortgage rate, 7 percent, up from 6.96 percent last week, according to lender Freddie Mac.
A year ago at this time, the 30-year interest rate was 5.13 percent.
"Depending on your credit and your down payment, in South Florida is somewhere in the mid to high 7s," said David Mecarchena, who works as a loan specialist at Cross Country Mortgage.
He said the current scenario is tough.
His advice for first-time home buyers?
"You can go to the seller and help buy down your rate, it's program 2-1 interest buy down," said Mecarchena. "The seller buys 2% off your rate for the first year, and 1 percent off your second year."
For instance - if buying at a 7.5% interest rate, (if authorized by the seller) buyer will get for 1st year 5.5%, 2nd year 6.5%. "It helps because the first year you'd pay six or seven hundred dollars less a month, rather than if you would just buy at a 7.5% a month," said Mecarchena, who has been a lender for eight years.
He says the buyer can refinance the same house a year later, locking a rate that will enable him/her to save money.
"I tell my buyers not to be scared of interest rates," told CBS News Miami Cheila Gonzalez, who is a real estate agent for Luxe Properties. She says although we are now in a seller's market, if you can afford to buy, do it.
"It could be something small, because eventually it'll get equity, and then you can buy something else," said Gonzalez, adding however that buyers should beware of buying a condo. "Places that have an HOA may not work for you because they have to have reserves, you can end up with an assessment."