February 15th, 2017 5:48 AM by Jackie Graves, President
Unless you plan to buy your home
with cash (lucky you!), it’s important to know what’s going on with mortgage rates these days.
The bad news is that they are rising. The good news is that they have been at
historic lows since the housing market crashed nearly 10 years ago — and they
are still low. But since they probably won’t
stay this way forever, let’s take a moment to learn what rate hikes could mean
you hurry to buy a home?
When rates start to rise, homebuyers often rush to buy a house —
in theory, these buyers are hoping to get into a new home before rates go any
higher. But Ralph McLaughlin, Trulia’s Chief Economist, advises against this.
“Don’t rush,” he says. “Buying the wrong home can be a costly mistake to fix.
Mortgage rates are just one of many factors that go into the decision
to buy a home — and it
certainly shouldn’t be a deal breaker,” says McLaughlin.
an increased rate affect loan payments?
would have to hit 9.1% before renting becomes cheaper than buying
a home in most major markets,” says McLaughlin. “Even in the most expensive
markets, rates would need to be over 5% to tip the scale on the rent versus buy
math.” If you think you might move in five years, there are ways to get a lower
interest rate (if
you qualify). You could take on a five-year adjustable-rate
mortgage, which could get you a lower interest rate — plus rate increases at
years four and five.
about the price of a home?
There’s good news for some homebuyers when interest rates
increase. Yes, you read that right. Increased rates often mean a decrease in
the number of potential buyers — and that can bring down home prices. For
instance, even if you have to pay $100 more per month because of a rate
increase, things could still balance out — or you could even come out ahead —
if you get the home for less.
But if competition is fierce and inventory is tight, home prices will be high.
That factor, not the interest rate, will probably drive whether you can afford
to buy that home for sale in Sarasota, FL or Seattle, WA. “At the end of
December, we saw that the number of starter homes on the market fell by 12.1%,
while the median list price of these homes rose by 7.6%,” says McLaughlin.
there be more rate increases?
No one knows what the future will bring, including what will
happen with mortgage interest rates. Most experts expect rates to continue to
increase, but those increases could be minimal. A rate increase will probably
be felt most by people in expensive markets whose budgets are already
stretched. “We think rising mortgage rates will cool home buying in California
and the Northeast, where Trulia’s Rent vs.
Buy margins are slimmest,
but won’t have any noticeable impact in the rest of the country,” says
getting a loan be more difficult?
The potential for rising interest rates might make you wonder
whether you can even qualify to buy a home. The good news is that the current
mortgage rates probably won’t make a difference. “When it comes to qualifying
for a mortgage, how rates are trending really doesn’t matter,” says McLaughlin.
“What does matter is your
credit score.” However, if a higher interest rate would change your
status from qualified to declined, there are things you can do. “These
households will either have to put a larger down payment on their dream home or
find one that is less expensive,” says McLaughlin.
It’s also important to comparison-shop. If you no longer meet
traditional loan guidelines because of higher interest rates, you may need to
keep searching until you find a lender who can work with you on a low down
payment or flexible underwriting options.
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