Interest Rates Are Climbing: Here's What Buyers NEED To Know

By Corrie Forcet, Realtor® of The Forcet Group | KW Suburban Tampa

Interest rates have risen to values this country hasn't seen in 20 years. Naturally, this has a significant impact on a buyer's decision to apply for a loan. This is understandable, as the intention behind the rise in rates by the FED Reserve is to correct the market, deter buyers, and therefore increase inventory in the housing market. So what does this mean for you? Are you a first-time homebuyer? Are you interested in investing in Real Estate?

Qualifying For A Loan:

Increased interest rates could mean it could be more challenging to qualify for a loan. This is because rates make monthly mortgage payments rise. When rates were 2.9 percent, for example, the average borrower needed an income of $133,450 to buy a $750,000 home with a 20 percent down payment. At a rate of 6.9 percent, that same loan would require an income of $195,700; the monthly payment would increase from $3,114 to $4,567. So a buyer would need to seriously evaluate how much home they can afford based on the monthly mortgage payment, not so much the home price.

First-Time Home Buyers:

Good News! A rise in interest rates could be exactly what you need to enter into the housing market. Yes, higher rates affect your monthly mortgage costs. However, with that fact in mind, home prices are slowly declining. It could very well be that your mortgage premium including the interest is STILL less than the rising cost of rent. And since many homeowners are not willing to forgo their fixed rates of 2% and 3%, they are not flooding the housing market, out-bidding first-time homebuyers as was the case earlier this year

Homeowners and Investors:

So the question lies, should you or shouldn't you. If you can afford the higher interest rates, this can be one of the best times to sell and buy again. With so many buyers priced out of buying new homes with high interest rates, you will have less competition from other buyers and more room to get better deals. If rates decrease later, you can refinance and save even more! If they never decline, you have bought a home while prices are on the downswing. This is a win win!

In all cases, determining how much home you can afford with the current rates takes some calculating and expertise. This is what I am here for! Reach out to me if you are curious and I'd be happy to help you crunch some numbers.