Offering a special glimpse into the financial realm, M Realty's preferred lending partner, Guild Mortgage's Brent Lucas, details the impact of mortgage rates on actual buying power.
Mortgage Rates Drive Home Affordability "How much home can I afford?" It's among the most common questions asked by a home buyer and the starting point for nearly every home search in the country.
Changing mortgage rates do more to influence home affordability than changing home prices.
If that seems strange to you, think back to the last two years. Quarter-after-quarter, home affordability stuck near all-time highs even as home values have recovered from "the bottom." Home affordability didn't improve because home prices were lower -- they improved because mortgage rates were at their lowest.
Each time rates ticked lower, a buyer's purchasing power increased. When mortgage rates reached their lowest in November of 2012 (3.35%), affordability had peaked.
Lately, however, the trend has reversed. Mortgage rates have pushed past 4 percent and the answer to "how much home can I afford" has changed as well.
Take, for example, the hypothetical home buyer in Portland who was pre-approved in May 2013 for a maximum $475,000 loan amount, assuming 20 percent down. While she's been shopping, U.S. Mortgage rates have been on the rise. Unfortunately, with each 0.125 percentage point increase to rate, her maximum purchase price has dropped $7,200. Today, that same buyer can afford a home for $424,326.
Do You Know Your Buying Power Now? Mortgage rates are markedly higher as compared to just six weeks ago. Today's home buyers -- pre-approved or not -- should consider a re-pre-approval; a re-verification of terms and a re-qualification for a mortgage.
Now is the perfect time to reach out to your real estate agent to be professionally connected to helpful financial tools like Brent's. You can interact with his mortgage calculator at LucasLendingGroup.com.