How Increasing Interest Rates Impact Home Buyers
Increasing interest rates are causing big issues for home loan shoppers in 2018.
Shopping for a lender that you trust can take time. Time can work against you in a fast changing market like we’re experiencing in 2018.
In this article, I will discuss:
- How increasing interest rates impact purchasing power
- The affect of a .50% interest rate increase
- 3 mistakes all home buyer should avoid
Interest rates are moving up at a pretty consistent pace so far in 2018. While rates are not sky-rocketing out of reach, this trajectory could make your recent mortgage quote null and void.
A Moving Target
When interest rates increase, you slowly and surely have your purchasing power eroded. The maximum purchase price you qualify for is based on a maximum mortgage payment, including taxes and insurance.
As interest rates rise, so does your mortgage payment. If you are already looking for homes in the maximum purchase price range that you qualify for, your purchase price now becomes a moving target.
The Impact of .50% Rate Increase
How does a .50% increase in rate affect your payment? Let’s take a look.
This is a very realistic scenario if you’ve been shopping for the right lender in January or February 2018.
30 Year Fixed Rate Mortgage Quote
For this example, let’s assume say you spoke to a lender 2 weeks ago, and were give the following quote for a home loan.
Interest Rate: 4.25%
Here we are, 2 weeks later, and you don’t feel like that first lender was a great fit for you. So you call more lenders.
You tell the lender that the maximum payment you can afford is $1,476. It’s been 2 weeks since you were quoted 4.25%, and now rates have increased.
If interest rates increase .50% to 4.75%, your maximum loan amount goes down to $283,000 in order to stay at a $1,476 payment.
As your interest rate increases, the maximum loan you qualify for goes down. This means you either have to look for homes in a lower price range, or bring in more money for your down payment.
3 Avoidable Mistakes that Buyers Make
Mistake #1: Choosing a Lender Instead of a Loan Officer
A lender is just a name on a building. A professional loan officer is a someone that makes a living helping families become home owners.
Big box lenders that advertise on TV do not connect you with a professional loan officer. Instead, you are transferred to a series of tele-mortgagers that specialize in taking phone calls, not solving mortgage problems.
Working with a professional loan officer can help protect you against surprises, because experts understand and follow the market every day.
When you work with a big box lender, you will not have an experienced professional proactively keeping you informed about changes that might affect your qualifying.
Mistake #2: Giving Your Phone Number to a Tele-Mortgager
Calling the phone number given to you by a puppet, or a TV commercial (especially with a Superbowl commercial!) are spending their money on advertising, and dumps you into a call center to push you through an assembly-line.
If you’ve already called one of these phone numbers, and you almost had to cancel your phone number to get to stop ringing, then you know what I’m talking about.
If you are not sure what I’m talking about, I wrote this article, The Shocking Truth Behind Mortgage Call Centers to help you understand why I’m so passionate about connecting you with a professional loan officer, and not a mortgage call center.
Mistake #3: Not Being Prepared
There is nothing you can do about interest rates increasing or decreasing. What you can control, is being in a position to move fast if interest rates move quickly in a favorable (downward) direction.
Interest rates change all day, every day. Over the past few months, and all of 2018, interest rates have steadily increased almost .75% from 6 months ago as of the writing of this article.
In today’s market, there is a lot of competition, and not many homes for sale in most communities. If you find the home of your dreams, you need to have a loan approval to make a strong offer. If you have a full underwriting approval, even better!
With an underwriting approval, you are also in a position to lock in your interest rates in a moments notice should the opportunity present itself that requires you to move fast to lock in a rate.
Choosing The Best Loan Officer
Choosing the best loan officer is not as easy as it sounds. Here is a simple path to follow when trying to choose a mortgage professional to work with:
- Ask friends and family if there is someone they LOVE (not like, or used, it has to be LOVE)
- Engage in a conversation with them. Listen carefully for their intention. Is their intention to understand and meet your goals, or get you to complete an application and run your credit? If you’re feeling option B, RUN!
- Make your decision based on your “gut”, not because you feel pressured by the loan officer. Do they give you a good feeling?
It does not cost more to work with a professional loan officer. In fact, many of the most experienced loan officers work at independent brokers, and most of their business comes from referrals from past clients.
This more experienced loan officer does not have the overhead, or the cost involved that big box lenders are burdened with.
If the cost is the same, or lower, why would you ever choose to work with a telemarketer? It’s because TV commercials reach much further than “word 0f mouth”.
If you are not having luck on your own, I am happy to introduce you to an expert loan officer that I personally know and trust.
You can meet some of our experts by clicking here, or you can connect with me below, and I’ll do my best to connect you with the right professional.