In the last month, we have seen rates jump up – especially in the last week. In the last month mortgage rates have increased by about .50%. We haven't seen that since about 2009. With the volatility in the bond market, you want to keep in touch with your lender to make sure you can still afford the home you are looking at.
When mortgage rates go up by 1%, your buying power drops by about 10.75%. This can really affect your loan approval. Changing interest rates can affect your buying power more than changes in home prices. The bigger issue right now is home prices are going up and so are interest rates. With that combination, you need to be aware of what you can qualify for and if there are going to be any issues with the home you may have found -especially if you have not locked in your interest rate.
How much home can you afford? It's one of the most common questions I get asked by home buyers. It's where most home buyers start their home search. It helps buyers in two ways – it gives boundaries to what they can search for and it establishes a price range for homes you can actually afford to buy.
How much home can you afford is sometimes different. It may not be the actual purchase price but a combination of the price, taxes, insurance, association dues and other costs such as utilites, etc. The higher the interest rate, the higher the purchase price, the higher your mortgage payment is going to be. You need to set your boundaries for what you can afford and make sure you can qualify for that amount.
If you have been approved for a mortgage in the last few months and still haven't found a home, you need to talk to your lender. With interest rates rising, you need to make sure your loan approval is still valid. We don't know how fast interest rates will continue to jump, but you can definitely expect that we have hit bottom and rates are on the rise! I'm sure there will be days where we will see some improvement, but we never know for sure. If you have found a new home, I would talk to your lender about locking in the interest rate so you know you are protected!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants – Email – Website
