Pub. 2 2022 Issue 3


Rate Changes and The Homebuying Journey

Rates are a hot topic in the housing market lately, understandably so. The market is finally starting to slow down, and we have unprecedented conditions with rising rates, as well as home values. This can make for an interesting homebuying experience if you don’t know how to navigate the market. There are a few ways rising interest rates may affect the homebuying journey, as well as a few tips to better navigate it.

What determines mortgage rates?

Several factors determine how a borrower will get the specific rate on a mortgage, but much of the mortgage rate is determined by the market itself. It’s natural to assume the Federal Reserve controls rates, but that’s not necessarily the case.

The Federal Reserve does have the power to control short-term rates they provide to banks and lenders. Lenders then take these base rates and use them to determine their own rates. This is why you’ll often hear the term “rate shopping” in reference to buying a home. Different lenders might provide different rates depending on how much risk they’re willing to take on to finance a home.

In cases where the economy needs a boost, like with the COVID-19 pandemic, the Federal Reserve will lower base rates in order to inject buying power into the market. Once the economy begins to recover, base rates begin to go back up. Lenders typically follow the Federal Reserves’ trends, so you’ll see your rates rise as the Federal rates climb. Personal factors are also a big variable in determining a specific mortgage rate.

What does today’s market look like?

Today, we’ve started to navigate uncharted waters in the housing market. Rates are beginning to rise as the economy stabilizes, but inventory is at an all-time low. Because of supply and demand, this means home prices are reaching historic highs. Luckily for homeowners, this means a higher return on investment if they decide to sell their home. However, homebuyers will find it’s more important than ever to set themselves up for success before looking for homes. This means getting pre-qualified early, securing financing as quickly as possible, and ensuring that finances are in order.
There’s a lot of talk about a “bursting bubble” in the housing market due to current conditions, but it’s important to remember this is highly unlikely. After the 2008 financial crisis, important safeguards were put in to place to ensure your investment into homeownership is a sustainable one. Buying and owning a home is still one of the soundest investments a person can make as a consumer. It’s just more important than ever to know how to navigate the market conditions and work with a team of experts who can help to have homebuying success.

What can you do to navigate rate changes?

As a homebuyer, most of the journey relies on the conditions of the market. From inventory to federal rates, a variety of factors can make it more difficult to purchase the dream home. However, with a few tools you can use to help set your borrowers up for success.

A Borrower’s Financial Landscape

While the base rate is the decision of the Federal Reserve and the lender, securing the best rate for a borrower is all dependent on the borrowers’ financial landscape. A better financial landscape can be created by decreasing the debt-to-income ratio, cleaning up credit score, and putting more down. Exploring different loan programs will also help provide more options.

Extended Lock

With the current inventory problem many homebuyers are facing, some borrowers may decide to opt for new construction. While new construction will alleviate inventory issues, rising rates might end up costing more on the mortgage since building takes more time.
Flat Branch Mortgage Services program offers a rate lock for up to 240 days. This will help avoid rising rates while keeping the flexibility your borrowers need to make their new home perfect. Finding and buying a dream home is becoming an increasingly arduous process for your borrowers, from climbing prices to rising rates, but with the right tools and right team, you can have homebuying success. Ready to explore your options? Reach out to Flat Branch Mortgage Services to discuss these programs and how you can implement them for your lending base.