You Can Purchase Your First Home!
If you’ve been keeping an eye on the real estate market recently, you’ve probably heard a few rumors about rising interest rates flying around. We’re sad to say that what you’ve been hearing is true — but that doesn’t mean you should give up hope on your dreams of becoming a homeowner.
Buyers Agent, Team Chris Eckert
Keep reading to learn more about what’s happening with interest rates today — and what you can do to stay competitive. While the mortgage industry is undergoing a change, it’s entirely possible to keep up with the curve. All it takes is a little forethought and planning to make it happen.
Why Do Interest Rates Rise & Fall?
To give you a little context, the Federal Open Market Committee (FOMC) is in charge of regulating interest rates based on the condition of the economy. They do this by fluctuating the Federal Funds Rate, or interest rate at which banks borrow money from each other. Banks do this on a daily basis in order to stay compliant with federal regulations regarding how much money they keep on hand — or in reserve — for their consumers.
When the economy is not doing well, the FOMC lowers the Fed Funds Rate, which gives lending institutions more incentive to lend money to you since, if needed, they’re easily able to borrow more. In turn, your loan allows you to make purchases, which stimulates the economy.
In times of economic prosperity, the FOMC will raise the Fed Funds Rate, which makes it more expensive for banks to borrow the money that they need to stay compliant. They pass this cost onto the consumer by raising their rates, which slows down the economy and protects against over-inflation.
Why’s It Happening Now?
Put simply, interest rates are rising because the economy seems to be doing well. In 2017, the Fed Funds Rate was increased three times due to a declining unemployment rate, the growth of the stock market (until recently), and changes to the tax code that — whether or not it actually happens — promises to put money back in people’s pockets.
Three additional hikes were projected for 2018, and this far, the FOMC seems to be holding to that goal. While mortgage interest rates have a tendency to rise slower than other types of rates like credit cards and home equity loans, there has been a shift in the market. Mortgage interest rates have increased about 0.50 % in the last 6 months and are hovering around 4.5%, which is the highest it’s been since 2013.
The way things are going, it’s reasonable to expect that they’ll continue to climb.
What You Can Do?
Many buyers are, understandably, discouraged by this news. However, it’s important to understand rates are still historically low, and that despite their increase, it is still possible to buy. You just have to be smart about it!
Here are a few tips on how you can try to play these changes to your advantage:
Since it looks like interest rates are going to continue to increase, potential buyers will benefit from buying now rather than waiting. In this local economy, homebuyers are fighting both increasing interest rates and appreciating property values. With the current trends, making the same purchase a year from now, will only require more down payment and loan and housing costs.
Once under contract, buyers can lock their rate for a specified period of time, as long as you close before the lock expiration, your interest rate will remain the same even if market rates change.
When Ready, Get Pre-Approved.
Get Pre-approved by a trusted mortgage advisor. In working with them, they will determine if you need to pay down debt and/or work on credit related issues. A good mortgage professional will help you balance your home financing goals, with cash flow, as well as short- and long-term financial objectives.
Stearns Lending does offer 80-10-10 loans that allow a borrower to put only 10% down. And have access to Jumbo lenders that allow debt to income ratio’s over the standard 43% DTI ratio
The most important thing about purchasing a home is to surround yourself with capable professionals who can provide guidance during the home buying process and have your long-term goals in mind. After all, buying a home is one of the largest purchases most people make in their lifetime!
Buyers Agent, Team Chris Eckert