Rates Are Pressured Upwards, What Should I Do?

Just in the month of March alone, some mortgage programs experienced rate increases of +1.0% or more (depending on the loan scenario). Many are asking us directly, and we bet more are asking themselves privately, “What do I do now?” In this article we will address some things you may need to consider now that mortgage rates have crossed into the 4’s for VA, FHA, and Conventional Purchase loans and even the low 5’s for high balance high loan to value loan types.

First, lets address the state of the union on the impact of rates on real estate. This is the tale of two markets unfolding right before our eyes on a daily basis. When rates began ticking upwards rapidly some buyers who on the fence jumped headfirst into the home search with greater fervor and intensity to try to get into a home before rates go even higher. In this regard, some open houses have been jam packed again as buyers outbid one another to try and secure housing to achieve the goal of homeownership and do it before rates continue upwards if they are to do so on the horizon. While this could be perceived as healthy market activity, it is also a reflection of the historic lack of inventory that plagues local markets everywhere. As inventory levels remain low, prices will remain high, but eventually start to come under price pressure due to the cost of borrowing mortgage money.

The other side of the story is some buyers who were on the fence simply got off and have discontinued their home search or are priced out of the market altogether. This looks to be happening more frequently in higher cost regions of the country and has led to some open houses being unvisited…even on a Saturday. Unlike the inventory shortage causing packed open houses, this is more of an economically driven function of personal preference. Borrowers who were once happy to pay that all time high had the benefit of doing so with all time low mortgage rates. And although those days were in our recent past, the swiftness of these rate increases are unlike anything we’ve seen in 16 years of business.

Now knowing what people are experiencing out there, let’s shift and talk about how you can still will in real estate and mortgage in 2022.

Buyers here’s how you can take the next right steps:

The bottom-line up front is nail down the details of your financial and credit picture in order to put yourself in the best position to buy in a swiftly shifting rate market. Specifically, this means meeting with a local loan expert (in person or online) to complete a full loan application, submit your financial documents, and review your tri-merge credit report. Additionally, once we pass April 15^th on the calendar, banks and underwriters can begin requesting the past years personal tax returns (based on your loan conditions at time of desktop underwriting approval). So, it will be important to have your most recent years W-2s, 1099s, and federal tax return handy. If your income reflects a pattern of increasing year over year this will best help you maintain solid qualification in this type of rate market. On the contrary, if your income reflects a pattern of declining year over year, you will need to work very carefully with your loan officer and underwriting team to ensure you will meet the standards of the loan program you are qualifying for.

Homeowners here’s how you can take the next right steps:

Consider and decide how your home equity can work for you, especially if you intend on keeping your home for the next 5-10 years, or longer.  Forecast your future financial needs in a way that considers major projects or life events upcoming in the next few years. There could be a bit of math involved in this; however, even the exercise itself will be of great benefit. If rates do continue upwards, the cost to borrow money will continue to be higher whereby waiting until next week or next month will cost you simply for…waiting. If you have been considering that kitchen remodel, room addition, bathroom refresh, Accessory Dwelling Unit (ADU) build, landscape redesign or pool addition please seriously consider taking action on a cash out refinance now. Ultimately, you are still in the driver’s seat of locking and funding your loan, so starting the process and securing the lowest rate possible is more in your control having started vs. waiting and finding yourself behind in an increasing rate market.

For homeowners who want the home equity to do to some financial heavy lifting for them, this could be a good time to actually do that debt consolidation, pay off the cars, use equity to pay off student loans, start that side business, or even stash money for your kid’s upcoming wedding plans. (By the way, if it’s not obvious, all these reasons listed are firsthand accounts of cash out refinances we have done over the years for homeowners just like you).

In the end, this is about maximizing preparation and opportunity in the market. The decisions may be tougher nowadays than they were just 60 or 90 days ago; however, we find ourselves in this place where aspirations are met with a new set of financial circumstances. Ask all the questions you’d like in order to come to the conclusion that’s best for you and your family. Consider all the factors and benefits that are available to you, and draw conclusions that will best serve your homeownership goals.

If you would like to speak with our team about your home loan questions, please complete the form below. You can also start your loan application online by APPLYING NOW.

Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.