Interest rates are rising now after recently reaching historic lows. For the first time since 2019 this spring, mortgage rates exceeded 4%. It’s challenging for purchasers because of rising borrowing rates, strong demand, and short inventory. Additionally, this implies that some purchasing tactics are evolving. So, this is what prospective homeowners in Houston should know regarding rising interest rates.
How Rising Interest Rates Impact Buyers
Here are some of the most important ways rising interest rates will affect Houston home buyers . . .
- “You end up being approved for a smaller loan amount. Preapproval amounts are determined by your debt-to-income ratio, down payment amount, and monthly payment you can afford (DTI). You’ll have a smaller amount of debt you can manage because your monthly payment is larger.”
- Finding properties in your price range may be more challenging. Usually, sellers end up cutting prices when interest rates rise. However, this takes time, and since demand is still high, property prices are probably going to stay that way.
- Greater interest rates will also result in a higher monthly mortgage payment, which will consume a larger portion of your monthly budget.
- “Consider carefully whether to buy versus rent. Even with higher rates, rent costs typically increase more quickly than mortgage payments when property values are rising as quickly as they are. Though every market is unique, it doesn’t harm to calculate the costs for your region.”
New Buyer Strategies
With rising interest rates, some old buyer advice no longer holds, and new strategies are called for.
Get a Mortgage Commitment
Before making an offer, purchasers used to be recommended to obtain a mortgage pre-approval. The seller is more confident that you can obtain financing and are a serious buyer if you have received pre-approval. However, experts in the field now advise getting a mortgage commitment rather than a pre-approval letter.
“A licenced underwriter grants a mortgage commitment. This implies that the financing terms for the buyer will have less restrictions. It enables the transaction to go more smoothly and expedites the seller’s payment.”
Though this takes longer than pre-approval, be aware of it. Typically, borrowers must provide the lender with all relevant income and asset documentation. Then, a member of the underwriting team must evaluate and approve those documents.
Purchase Points for a Lower Rate
Buyers typically didn’t need to bother with points to lessen the percentage of interest charged in the past when interest rates were low. But with interest rates currently on the rise, purchasing mortgage points is a straightforward approach to cut your mortgage’s interest rate and save money over time. Purchasing mortgage points may be worthwhile if you have the extra cash on hand at closing. Your monthly mortgage payment will be reduced as a result, saving you money over time.
Here’s how it works. “Points are an upfront fee you pay to get a lower rate over the life of your home loan. Typically, 1 point lowers your mortgage rate by 0.25% and it costs 1% of your loan amount. So if the current interest rate is, say, 4% on a $500,000 loan, if you pay 1 point, or $5,000, upfront, your interest rate will be reduced to 3.75%.” And that .25% can mean tens of thousands of dollars saved over the life of your loan.
Get Down Payment Assistance
Historically, first-time buyers were the primary beneficiaries of and users of down payment assistance programmes. But more buyers need to consider down payment assistance given the current competitive home market and high interest rates.
“Purchasing a home is a significant financial commitment, particularly in competitive markets like the one we’re seeing right now. Ask your lender about potential down payment assistance programmes if you’re having problems coming up with the money for your down payment and closing charges. These programmes frequently offer grants or other types of financial aid to assist in defraying such expenses.”
Be Budget Conscious on Price
With property costs remain on the rise and rising interest rates, it’s simple for purchasers to overspend their means. Before submitting any offers, purchasers are advised by industry professionals to coordinate closely with their lenders.
She recommends buyers to be completely open and honest with their lender about their financial situation. They should be sure to take into account the fact that they will probably have to make an offer above the advertised price for each property. When they find the home they desire, they’ll be prepared to make a solid offer once they have a better understanding of what they can actually afford and are aware of their limitations.
The Need for a [marekt_city] Agent
For purchasers, the market is challenging, and loan rates are rising. The end result is that buyers now more than ever need the assistance of a knowledgeable Houston agent. You truly need the negotiation skills of your agent right now. Please get in touch with us right away at (713) 866-4000 if you’re prepared to purchase but are concerned about rising interest rates.