Interest rates are rising, but are still at some of the lowest points in recent history. That is good news – despite some who may be sounding the alarm over rising interest rates and the impact on today’s fast paced real estate market.
Increasing interest rates often tend to drive down home prices, making this environment ripe for home loan applications. Though interest rates likely won’t affect a person’s ability to qualify for a mortgage (lenders primarily assess at debt-to-income ratio and credit score), they could mean that you are able get more house for less money.
State of the Housing Market
The housing market is currently on the road to recovery. According to Kiplinger’s, the 30-year fixed mortgage rate is projected to reach 4.8 percent by the end of 2018, while the 15-year fixed mortgage rate is expected to hit 4.3 percent. Conforming mortgages are also expected to be on the rise, as increased maximum amounts mean more homebuyers may be able to purchase while avoiding jumbo loans (which usually come with higher interest rates).
The Federal Housing Finance Agency has increased the maximum loan amount for conforming mortgages for 2018. A conforming mortgage is a loan that meets the Freddie Mac and Fannie Mae guidelines. There are several guidelines, but the most well-known is the loan size. With the maximum being raised, that makes more homes eligible, so more homebuyers can cash in.
While the housing market is ripe for better lending terms and lower prices, finding a home may not be as easy. All across the country, houses for sale in prime areas are scarce. Multiple homebuyers are putting in their bids on homes in ZIP codes that are deemed high demand due to the increased buyer interest.
Even so, this is a good time to buy a home. Even with rising interest rates and increasingly competitive markets, homebuyers should still find loan options to be plentiful for housing options that align with their needs.
Rising Interest Rates & Homebuyers
In real estate, it would seem almost logical that rising interest rates would present challenges to both the homebuyer and seller. After all, a rise in rates would mean higher costs and a hit to the market as prices are driven down. The savvy homebuyer will maintain a vigilant watch on the market and make their move when the environment is right for the sale.
The problems that could occur hinge on interest rates. For instance, if a homebuyer wants a 30-year fixed mortgage with an interest rate at 4 percent, qualifying for a 5 percent interest rate could increase their payment several hundred dollars. That 1 percent can raise a payment by 10 percent or even more. Homebuyers may also qualify for a lower mortgage than what they want, thanks to the effects of the climbing interest rates.
Then again, it is this environment that makes conforming mortgages so appealing to many homebuyers. This market may not be ideal for some first-time homebuyers, but there are opportunities for very good terms and even relatively low interest rates on larger home loans.
Considerations Before Purchase
Even when the environment appears prime for making a home purchase, there are some considerations to focus on before making an offer or initiating a mortgage application:
- Tax implications – Buying a home has its fair share of tax implications. For instance, the Tax Cuts and Jobs Act that was signed by the president in December 2017 limits the amount a homebuyer can deduct in 2018 on local, state and property taxes. The cap is just $10,000. Higher taxes can impact a person’s ability to write these expenses off. However, the standard deduction was raised in 2018, nearly double for couples than it was the previous year. That could offset the limited deduction.
- Cash reserves/savings – Saving is a significant part of financial management. The prospective homebuyer needs to maintain a sizable reserve in savings beyond the fees and costs that include closing costs, down payment and other expenses. Before initiating the buy, the wise homebuyer has more than adequate savings, plenty to cover fees and other costs. This will involve evaluating just how much house they are able to afford and possibly stretching a little to get a larger home for a growing family. However, it is vital to not exceed the tipping point that would mean bigger bills, a larger payment and a home they cannot really afford.
- Upcoming expenses – Thinking ahead is a vital step that many homebuyers miss — and come to regret. It is easy to get caught up in the home buying part of the situation, finding a real estate loan company, settling on a price and applying for the mortgage. That is a lot to juggle. But once the deal is finalized and it’s time to move in, a whole new process starts, and it can come with a hefty price tag. Buying new furniture, having children or purchasing a new car can take an already fragile budget that is still recovering from the homebuying process and require stretching it even further to accommodate additional purchases.
- Length of time staying in the home – Some people purchase a home intending to stay in it a short time, while others plan to stay there forever. The length of time the buyer plans to stay in the home directly benefits the purchaser. Homeownership comes with many perks like tax breaks and building equity. However, there are costs as well. Most experts advise staying in the home around seven years in order to get the full benefits and come out ahead financially.
At some point, interest rates will likely go down again. This will likely mean, once again, that home costs will rise. That’s why now is a great time to apply for a home or commercial loan!
If you have made the decision to purchase a home but are not sure where to find the right real estate loan company, start with America’s Search Engine for Loans. Start your search on Magilla Loans today and find the lender that is right for you.