How to adjust your approach to buying when mortgage rates are rising, selling prices
There are no questions about this. We are in a different home buying environment than even six months ago.
Mortgage interest rates continue to rise and have now exceeded pre-pandemic levels, while house prices have remained high amid continued competition. In some cases, potential home buyers were withdrawn from the market.
However, for those who can still stay in the mix for a new home, there are a few adjustments you can make now to help you compete and fund a new home.
Adjust your purchasing power expectations
Obtaining a pre-approval mortgage is necessary to accurately estimate how much housing you can buy, pay attention to the amount and rate you pre-approved, and how long that pre-approval is valid if the rate changes during your search.
The good news is that mortgage rates are usually ahead of the Federal Reserve’s rate hike curve due to the fact that mortgage rates are more closely tied to the Treasury’s 10-year yield.
Work closely with your lender to make sure you know exactly your rate and pre-approved loan amount, as well as the types of mortgage options that are best for your budget, including regular fixed and fixed rate mortgages, FHA mortgages and first programs for home buyers.
Seek financial help
When mortgage rates were the lowest, some buyers were able to cut their monthly payments while still not applying 20% of the down payment because lower rates helped offset monthly expenses such as private mortgage insurance (PMI). PMI is usually applied to mortgage lenders to minimize the risk of granting a loan without as much collateral (cash) from the borrower.
This has allowed buyers to withhold part of their cash with smaller down payments that can be used for relocation and renovation costs or for buying more housing.
Now the combination of higher rates and prices results in a higher monthly payment before the PMI is even considered, which requires larger initial payments.
The good news is that there are local, state and federal customer assistance programs. Lenders also offer resources such as first payment grants and other programs for some home buyers and places. Always consult with your lender about programs and additional financial resources that may be available, especially for first-time and low- and middle-income buyers.
Also, consult with your employer about any assistance in buying a home that they may offer to employees.
Stay where you are
If you are the current homeowner who has been trying to upgrade, now may be a good time to reconsider your approach. Although inflation is still a factor in the supply and demand for building materials, increasing the value of your home can provide new opportunities to use equity to refinance cash to fund refurbishment or make a big purchase to build your oasis in the backyard or enjoy time away from home in a new way, such as on a camper or on a boat.
Whatever direction you choose in your long-term approach to home ownership, talk to your lender and local realtor to help evaluate options and make an informed decision about how to best use your financial resources.
Jeffrey M. Ruben, president of WSFS Mortgage, joined WSFS through the acquisition of Array Financial, a full-service mortgage organization, and Arrow Land Transfer in August 2013. Ruben founded Array and Arrow in 2005, having previously held senior positions in financial and legal institutions.