As expected, the Federal Reserve raised its benchmark lending rate on March 15, moving its overnight lending rate from 0.75% to 1%. This isn’t earth-shattering news by itself, but Columbus home buyers need to pay attention to it for several reasons.
For example, this is the second rate hike by the Fed in three months, and more increases are expected later this year. Here’s how it could affect you.
Consumers with variable-rate debt, such as credit cards, home equity lines of credit and adjustable-rate mortgages, could see an increase in their minimum required payments in as little as 60 days, depending on the type of debt and its terms.
Mortgage rates have already been trending higher during recent weeks. As of March 16, Freddie Mac’s weekly mortgage survey shows 30-year fixed-rate mortgages averaging 4.30%. This is the highest rate average so far in 2017. A year ago, this same mortgage had a rate of 3.68%.
Here’s another wrinkle to higher rates: they will affect the debt-to-income calculations (DTI) used by mortgage lenders to determine home affordability. If you are carrying variable-rate debts, like credit cards, increases in those rates could impact your monthly debt payments, and affect your front-end DTI.
Front-end DTI refers to the percentage of your monthly income that is taken up by existing debt payments. Back-end DTI considers your new, proposed mortgage payment on top of your existing debt payments. Bottom line: when interest rates move higher across the board, it means you qualify for less house.
When rates move up, and home prices are increasing, the home buying dollar doesn’t stretch as far. This is why progressive increases to interest rates could eventually push some first-time buyers, and others who are on the margins of mortgage qualification, out of the housing market.
As a future home buyer, one of your best defenses against a rising rate environment is to pay down and pay off your consumer debts! We’ll share some debt reduction strategies in a future blog post! And when you’re ready to obtain your mortgage pre-approval, we’ll refer you to trustworthy, local lenders.
As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
Andrew Show
Broker, CEBA, CEBA-M, CNE, CSP, ABR-M, e-PRO, GREEN
Buyer’s Resource Realty Services
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
614-888-4110 | 888-888-4110 Toll Free | 614-839-4110 Fax
