By J. Mansisidor
How is the current economic state affecting the housing market? Not much has changed in the past year regarding the lack of inventory, favoring a seller’s market, but rising interest rates are making a big impact. In this rising-rate environment, we’ve seen a slowdown in applications and consumers’ willingness to stay or enter the real estate market. This behavior is understandably common. Many people have decided to put their house search on hold. Often, they simply do not want to deal with the craziness of a market that is full of frustrations and letdowns. Most would-be buyers face multiple offers, purchase prices that are 10%-15% over list price, and the disappointment of repeatedly losing out on offers.
What might be less obvious but is also common during times like this is an uptick in specialty loan product activity (Doctor/Dentist Loans). With interest rates rising as they have and likely still on the rise, the competition is now less than what it was six months ago, and many Doctors/Dentists are reentering the market.
What should you look for in this rising-rate environment? Besides the obvious (a higher mortgage payment), how does a rising rate environment impact your qualification for a home?
If you were previously pre-qualified and had a letter from a lender, you certainly want to have that letter updated. Even though most pre-qualification letters from lenders are good for 90 days, rates have increased, some quite substantially. If your debt-to-income ratio was tight before, there’s a strong possibility that you may not qualify for the same amount. Even if you still qualify, you may not want a higher mortgage payment for the same price range you were looking at three months ago.
It is a good idea to ask your lender to provide estimates for both a 30-year fixed and 10, 7, or 5-year ARMS. With the 30-year fixed rate steadily rising, the ARMs have once again become a valid option as they provide a lower rate for the designated fixed period. There are some important considerations to be aware of when utilizing an ARM product. Make sure there are caps on how high or low the rate can change after the fixed period. Know the adjustment periods, as some loans adjust once a year, others every six months. Make sure there are no pre-payment penalties, allowing you to refinance or sell anytime. Working with a loan officer who can guide and keep you informed of their product and process changes is wise.
My best advice to clients navigating the housing roller coaster is to have patience and stay informed. Happy house hunting!
J. Mansisidor is a Specialty Loan Officer and Medical Loan Specialist with Key Bank.