Successfully Navigating Increasing Interest Rates in 2022

The first few weeks of the new year have been tense in the mortgage markets to put it lightly. When the Federal Reserve released their meeting minutes from their December meeting, it confirmed what many in the markets had speculated: The Fed is going to back themselves out of the market faster than initially thought, and we will see multiple increases in the “Fed Funds Rate” during the year. Both have had an immediate and direct impact on the mortgage market. Just 3 weeks into the new year banks and lenders have adjusted 30 year mortgage pricing up by 0.25% – 0.75% depending on the product, purpose, and loan amount (to name a few of the factors).

So that leaves many aspiring homeowners asking, “What do I do now?”. To address this at large we’ve compiled the top 3 things you can do to prepare yourself for the landscape that’s already changed, and likely to continue upwards until the market(s) determine otherwise. Quick Link: Refinance Your Home Loan

1) Aggressively pay down personal debts that are on your credit report. One of the best moves you can make to help buffer your affordability is to pay down your personal debt obligations. Things like your credit card payment, student loan, store credit cards all increase your debt-to-income ratio. The lower the ratio, the better your loan file looks in the eyes of an underwriter. Those minimum monthly payments may get you the items you want sooner than paying cash to acquire them, but the trade off is you might be affording less when it comes to your proposed housing payment. In an increasing interest rate market, the cost of borrowing money goes up and that directly threatens your debt-to-income ratio, and therefore your total loan approval amount. Even if you were approved for a loan back in December 2021, you should have your loan scenario re-ran now to ensure that what you were initially qualified for will still be approved in this higher rate market.

2) Save a greater percentage of your income each month in preparation for having your offer accepted. If you are already saving 10% of your monthly income in your personal savings, take a look at stepping that up any way you can. If you can’t squeeze an additional 1-2% a month into your savings, even another $50 or $100 a month will add up quite nicely over time. What we are seeing already in 2022 is that borrowers who have more cash saved up have greater flexibility to negotiate when it comes time to bid against another offer on the table. Not to mention, having more in savings helps you look stronger in the eyes of the lender, and provides you more financial security for when you do land your purchase and have moving related expenses and acquisitions to make for your new home.

3) Review your loan approval with your lender and adjust your loan scenario to fit the current interest rate landscape. The type of interest rate increases we are already seeing make tangible changes to purchase power. Depending on what price range you were approved for at the end of 2021, the monthly payment now could have increased by as little at $50 a month or as much as hundreds of dollars a month. It is imperative that you reconnect with your local mortgage expert to do the following tasks:

a. Rerun your monthly payment scenarios with the current interest rate
b. Update all your supporting documentation used to generate your approval (bank statements, pay stubs, retirement account statements, etc.)
c. Update your pre-approval letter(s) to reflect your current purchase power
d. Communicate any new findings to your realtor in the event the updated approval amount requires you to adjust your search criteria.

On final suggestion to best prepare yourself for a purchase right now: Get your taxes in order. Although the IRS has a deadline for personal tax returns to be completed by Mid-March each year, banks and lenders know that W-2s, 1099’s, and other income tax forms are sent to recipients in January each year. Therefore, they tend to ask for copies of those forms for purchase closings scheduled in February, March, April since they know they are out. Even if you plan on filing an extension, underwriters can (and will) ask for your income forms regardless of whether your full tax return has been completed for 2021 yet. If you do file early, please make sure you give a copy of your personal tax return to your loan officer so he/she can be aware of its impact in your loan approval status. We are looking for the same income or higher income. Whereas a decrease in income will require an updated approval before you continue on your home search.

Once again, preparation is the key takeaway in times like these. Remember the entire industry is digesting these new increased rates across the board. The more prepared you are in advance, the better your chances of having a smooth seamless transaction will be.

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.