Rates are a hot topic in the housing market lately, understandably so. The market is finally starting to slow down, but we have unprecedented conditions with rising rates AND 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 your homebuying journey, as well as a few tips you can use to better navigate it.

What determines mortgage rates?

Several factors determine how you will get the specific rate on your mortgage, but much of your 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 your 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 one of the more pliable variables in determining your specific mortgage rate. To get a closer look at how your personal mortgage rate might be determined, check out this blog.

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 you decide to sell your home. However, as a homebuyer, you’ll find it’s more important than ever to set yourself up for success before you start looking for homes. This means getting pre-qualified early, securing financing as quickly as possible, and ensuring your 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 most sound investments you 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 you have homebuying success.

What can you do to navigate rate changes?

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

Your Financial Landscape

While the base rate is the decision of the Federal Reserve and your lender, securing the best rate for your situation is all dependent on your financial landscape. You can create a better financial landscape by decreasing your debt-to-income ratio, cleaning up your credit score, and putting more down. Exploring different loan programs will also help you stay open to options you might not have known about. Your lender will help you figure out which mortgage plan will best suit you.

Lock & Shop

A typical rate lock will last 30-60 days and often goes into effect once you’re under contract on a house. However, with the increasingly competitive market and rising interest rates, you might want more flexibility to have a secure rate while you shop for your home.

Lock & Shop is a Flat Branch Home Loans product that allows you to protect your rate before you go under contract. With Lock & Shop, your rate is protected for up to 90 days to help you search and close on your dream home. This program will help you avoid rising interest rates and have more flexibility on your homebuying timeline. It comes with a refundable up-front funding fee, so you can feel comfortable knowing it will pay off if you find your dream home within your lock window.

Extended Lock

With the current inventory problem many homebuyers are facing, you may decide to opt for new construction for your new home. While new construction will alleviate inventory issues, rising rates might end up costing you more on your mortgage since building takes more time.

Flat Branch Home Loans offers what’s called Extended Lock. This is a rate lock for up to 240 days while you build your dream home. This will help you avoid rising rates while keeping the flexibility you need to make your new home perfect. With a refundable up-front funding fee, it’s a secure way to ensure you keep your ideal rate and protect yourself from market volatility.

Finding and buying your dream home is becoming an increasingly arduous process, 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 an experienced Flat Branch Home Loans lender today.

Rate Changes and Your Homebuying Journey