It’s no secret that interest rates are on the rise. In fact, if you have been considering buying or selling a home for any amount of time, you’ve probably been more than aware of the steady increase in interest rates throughout the year. And we know that for many of you, you’ve been left wondering, “What do rising interest rates mean for me?” Well never fear, we are here to help!
Earlier this year, we sat down with Christiaan Scoggin with DFW Texas Mortgage to help us better understand rising interest rates and how this directly affects buyers and sellers. Christiaan is a native Texan and has been in the industry as a lender since 2005. He’s also been a go-to resource for us, so we decided to pick his brain on this pressing topic.
Lenders help people purchase a home who don’t have the cash resources to purchase it outright. In other words, a lender will front the cash needed to buy a home if you, as the buyer, are unable to pay fully in cash. Lenders are creative problem solvers, need to be well-versed in underwriting guidelines (or rules for issuing loans), and able to hold your hand through the entire process of purchasing a home. We often refer to lenders as our most important co-workers.
As a lender, Christiaan looks at and deals with mortgage rates daily. So, we asked him to help explain how individual mortgage rates are determined and why they are not always the same from one person to the next. Many factors are taken into account when determining a mortgage rate, and some of these factors result in rate changes from one day to the next, like the market conditions. While market conditions will affect interest rates across the board, other factors will cause rates to differ from person to person. Factors such as:
Price of the home
Down payment amount
An individual’s credit score
Loan terms (such as a 10-year or 30-year mortgage)
The option to lock in a rate for a specific amount of time
Because each person will differ in these other factors, there will be differences in mortgage rates from one person to the next.
Christiaan also shared with us some changes he has seen over the past year in how people are going about getting mortgages. During the pandemic and a time of incredibly low interest rates, lenders were having to come up with solutions on how to help their buyers be more competitive against cash buyers. It was becoming more and more difficult for buyers to get an offer accepted if they needed a mortgage. One of these solutions was getting the buyers through the full underwriting process before even making an offer on a home. This allowed the buyers to put their best foot forward when it came to making an offeer. As a result, instead of asking for 30-45 days to close, buyers were presenting more offers to close in a matter of 14 days. Lenders have been able to offer full approval up front, rushing appraisal orders, and doing everything they can to make buyers more competitive against cash offers. Lenders like Christiaan have continued to offer these types of services, and it has remained an effective strategy in today’s market.
So why are interest rates rising so quickly, and will they ever slow or even stop?
Christiaan explained that increasing interest rates are a trickle-down effect of rising federal rates. Currently, the fed has a directive to combat inflation and they do that by increasing rates. This in turn affects the economy because if the banks have to charge one another more, then they are going to charge the consumer more as well. Interest rates can also be affected by many other circumstances. World events such as war can impact rates as well as fluctuations in the stock market. None of us have any control over the federal rates, so lenders are encouraging buyers to get the upfront approval and lock in a rate before they start the home-buying process.
While no one can exactly predict the future, there are certainly indications that can give lenders a glimpse of what might come. At this time, it appears that interest rates will continue to rise through at least the remainder of the year. Now, the current interest rates may feel overwhelming. But Christiaan reminded us that while rates are high in comparison to what we have seen in recent years, they are actually not historically high rates. If you’re interested, you can check out Freddie Mac’s website to see their primary market mortgage survey to see the average interest rate from week to week and compare the data over many years.
So then comes the million-dollar question. Should you buy now or wait?
Christiaan agrees that if you are able and looking to move in the near future, you should buy now. With home values appreciating and interest rates increasing, you won’t be able to save as fast as the prices are going up. Additionally, you may not be able to qualify and get approved for the same amount of home if you were to wait another six months as opposed to buying now. Unless we see a recession, mortgage rates are not anticipated to drop significantly either. So, if you buy now, you’ll be paying less for the home and more than likely getting a lower rate than if you wait. And don’t worry. If rates do drop significantly, you always have the option to refinance.
Remember, calling a lender isn’t scary and it’s not a commitment. If you’re sitting around wondering what you can buy or afford, a lender is a perfect place to start. Your lender can give you the information you need to make the best-educated decision on what to buy. It’s a no-obligation call and will be really helpful to you to make the best decision for the home-buying process. If you’re looking for a lender, give Christiaan a call. You can find more information on his website.
If you’re thinking about buying or selling your home, we’d love to talk with you about this and answer any questions you might have. We want to help you make the best decision when it comes to this financial investment.
Until next time,
Brianna and Keelie