Higher Rates

As predicted, recent political and global events have caused a slight rise in mortgage rates. For potential buyers who have been on the fence about closing on a new home, now is the time to buy.

Even though rates have increased from the low figures we’ve seen throughout the year, they are still very affordable in comparison to past figures. Because the market is unpredictable and any event like economic distress can trigger rate fluctuation, buying now may actually lead to long-term savings.

If you buy today at a fixed-rate, as the majority of buyers do, you have the option to eventually refinance most mortgages into better rates or terms.

If you’ve been discussing loan options with your mortgage lender or have even been pre-approved for a home loan but have found that you no longer qualify for the same purchase price due to the higher rates, you’re not completely out of luck. Most lenders and mortgage loan programs will give you the option to “buy down” the rate via purchasing discount points that lower your rate. For example, paying $500 dollars will lower the rate .5% on a $100,000 mortgage. This can yield long-term savings, but if you sell your home or refinance too quickly, you may not see the benefits of the discount points.

Choosing a different loan program may also get you approved. Since mortgage approval is based partially on your debt-to-income ratio, higher rates might push you over the qualifying ratio for your loan program. For instance, conventional loans allows a DTI of 43% and USDA allows 41%. If your DTI exceeds these figures, FHA might be an option as it accepts 45-50%. Switching from a low-down payment mortgage like FHA to a zero-down payment program like USDA or VA may even free up some cash that can be used to buy down the rate even more.

If switching loan programs isn’t an option and you find that you now owe more money down than originally budgeted, you can make up the difference in cash. All popular loan programs permit cash gifts for down payment. They can come from family members, employers, approved non-profits, and even friends. Receiving a gift can mean keeping the same mortgage payment as planned on the home you want.

If you’re willing to wait, higher rates in 2017 might make it possible for you to buy your desired home at a lower purchase price. Low rates have created a competitive housing market as of late. Due to high demand, homes have sometimes been selling for even more than listing price. But higher rates will likely cool the market a bit. If you’re willing to take a chance and wait for falling home prices, you may be able to present a lower offer and have it accepted.