Thinking About Buying a Home? Know How You'll Be Affected by Current Mortgage Rates
Before you schedule movers and change your address, you’ll need to apply for a mortgage loan. The mortgage rate your lender offers will greatly impact your home-buying process, and you can’t get started buying a home without making a financially sound mortgage rate decision. The residential real estate market is constantly changing, and as supply and demand fluctuate, so do mortgage interest rates. A half-percent increase may not sound like a lot, but it’s important to know how that change will affect the home-buying cycle.
How Rising Rates Affect Buying Power
Lenders look at a number of characteristics to determine what interest rate they can offer prospective homeowners. Among those characteristics is the debt-to-income ratio (DTI). It works by totaling all monthly debt and comparing it to monthly gross income. As a general rule, lenders usually deny applicants with a DTI of more than 45%. As interest rates rise, DTI shows how much an applicant can afford without tipping the scale above 45%. Even minuscule rate increases can decrease buying power and budget by tens of thousands of dollars. The higher the rate, the less people can afford.
Exploring Other Options
No prospective buyer is required to accept the first rate offered to them. If you’re serious about buying a home you truly love, apply to several lenders and see what’s available to you. Ask about both fixed-rate and adjustable-rate options. If current interest rates are high, that doesn’t mean you have to wait to start looking at property listings. An adjustable-rate mortgage will allow your personal rate to drop as the market improves. But if current rates are low, it might be best to lock-in a fixed-rate mortgage that will guarantee those low rates for the entire loan term.
Recognizing the good rates from the bad isn’t always easy, but Dalton Realty in Clinton, WA, has spent the last 20 years helping clients make the right home buying decisions. Find a realtor you can trust by calling (360) 341-1666 or visit them online for more advice about buying a home.
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