When the Fed announces it’s raising the federal funds rate, there’s usually a lot of uncertainty and immediate questions from consumers that follow.
For example, “Should I be thinking about selling or even buying a new home right now?”
If you’re selling your house, chances are you’re probably looking to purchase a new house. There are many different factors that go into buying a house. Some of these factors include:
- How much house can you afford?
- Where are mortgage rates currently sitting?
- What do current home prices look like?
- Will you be able to support your family’s needs?
- How’s your job outlook?
- Do you have enough savings for a down payment?
While it’s never easy to know exactly when or how you should take action, it’s never a good idea to just sit around and do nothing. In other words, if you’re all set to buy, don’t let slightly higher mortgage rates stop you from moving forward. Follow your instinct. While long-term it may seem like interest rates will continue to steadily rise, it will take a long time before mortgage rates are back to a point where it will have an unmanageable impact on your finances.
Strike now and capitalize in a period where interest rates on home loans hover somewhere between 4% and 5%. Even if you end up with a 6% mortgage rate, it’s still a significant discount compared to the historical average.
Will higher interest rates affect your buying power? Of course, they will.
If rates get to a point where it’s piling hundreds of dollars on top of your mortgage payment, you might have to look at a lower price range. Fortunately, you can easily determine exactly how much house you can afford by taking advantage of home affordability calculators. These tools allow you to see exactly how factors such as interest rate, down payment and loan origination amount they will affect your monthly payment.
The bottom line
Yes, interest rates play a key role in determining how much house you can afford and as interest rates climb, you may find that you can no longer afford the house you originally wanted to purchase.
BUT there’s a silver lining here!
That same house you’ve had your heart set on purchasing should eventually come down in price to a level that matches the amount you can afford in due time. This is because when homebuyers’ purchasing power is limited by high-interest rates, home-sellers’ selling power is limited due to a lack of buyers in the market. It’s a catch-22.
Don’t get caught walking into the unknown without having an expert on your side. Finding the right agent can make a world of difference in the process of selling your house. Consider this information carefully before coming to a decision, and be sure to team up with a professional real estate agent who has been certified by AdvantageU Home Sellers’ Resource. We take the time to explain the process with you and understand your needs and goals so that you can arrive at the best possible outcome and a successful sale of your property.