Rising Interest Rates - Do Buyers Even Stand a Chance?

Rising Interest Rates - Do Buyers Even Stand a Chance

One of the driving factors in purchasing a home over the last few years has been the astonishingly low mortgage interest rates. Recently rates have been on the climb and the average mortgage interest rate just rose above 4%. This is the highest it has been in the last three years. Those hoping to purchase a home will be impacted by the home price they are able to afford with this new number.

Here are some ways a higher interest rate can make an impact on your home buying process

Higher rates can impact your budget or bring a higher monthly payment

Just a few tenths of a percentage can significantly impact the monthly required payment on a mortgage loan. It is a great idea to know exactly what you can afford for a monthly mortgage payment to live comfortably. Once you arrive at this number you will find that a climbing interest rate will impact the total price you will be able to pay for a home.

If you arrive at a number of $1000 a month for your maximum allowable home payment and you qualify for a mortgage rate of 3.5% you would be able to purchase a home that is about $222,000. If the mortgage rate climbs to 4.5% then this will drop the max purchasing number of a home to $197,000.

Higher rates adjust affordability and may mean adjusting your search

If you are unable to afford higher payments that come along with a higher interest rate this will mean that your max price ability to pay for a home comes down. This means that if you are set on living in a certain location you will need to adjust the parameters of what you are looking for in a home. If you are set more on the attributes of the home than the location it could mean searching further out from more desirable and populated areas.

Down payments and credit scores will play a bigger role in the interest rate you are offered

Just because interest rates are currently at an average number does not mean that that will be the interest rate you personally are offered by a lender. There are certain factors of your personal finances that will play a large part in the exact interest rate you will qualify for. Two of the largest influencers will be the size of your down payment and your current credit score. The higher the credit score you have and the larger your down payment the lower the interest rate you will be offered.

You might want to consider a different type of loan
While traditional conventional loans are the most solid and trustworthy there are many other means of being able to finance a home purchase beyond the most common of mortgages. You may want to consider a shorter-term loan or an arm or a non-QM loan to get you into the property. It is well worth taking over all of these options with a trusted mortgage broker.

It might be worth it to consider a side hustle

Increasing your income can be a very good means of being able to afford the home you want or to qualify for a mortgage with a lower interest rate that you are more comfortable with. Many people take on a side job for a short amount of time to be able to do things like afford a greater down payment or higher home payments or to just look better and more solid financially to a lender. If you are very serious about purchasing a new home it could be a way to help you get there quicker.

For more information on homes for sale in Prosper and Celina real estate and surrounding areas please contact us anytime.

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