2017 Rate Volatility Impacts Affordability

Well interest rates rose again. Its always a little disheartening to the prospective home buyers when the rates rise because it’s a little less square footage they can afford. The upside is you will have a little more flexibility than you know. 

We are going to have a look back at some past rates since November, see how it effected affordability, and what to do to get the best deal you possibly can. 

2017 rate recap & projections

Since the election rates have risen .75%. This is due to the belief that Trump’s administration will stimulate the economy again, through lower taxes, deregulation, etc. 

The rates are leveling off in an almost unpredictable way. Since November the rates have been dropping and rising again, every single day. 

It all comes down to inflation. If there are threats of inflation, rates rise. As the administration operates day-to-day, investors bet inflation to relax, and other days they bet for it tossing upward. 

Holistically, rates are off from post election highs, up .5% from this last election. 

The volatility will continue as investors and the Fed attempt to predict where the rates will go. Here’s how it impacts your potential purchase. 

How the rates impact affordability 

For example, a $350,000 home that has a 20% downpayment, followed by a rate spike of .5% takes away $17,000  from your affordability. This seems like a huge number, and it is, but it’s not damning you to a lesser home. 

How much home you can afford is based on a debt-to-income ratio, which looks at all your debts (car payment, credit card debt, etc.) and is divided by your monthly income. Typically, if you spend 43% of your income on bills, lenders won’t lend to you. 

That $350,000 house you want, your DTI says you can only afford $333,000 worth of house, but here’s how to work some magic. 

Increase your affordability

Instead of settling for $17,000 less of a house, just get rid of some bills. Simply pay off your smallest debts first, then tackle the larger ones from smallest to largest; this excludes other housing bills. Paying down a couple thousand dollars here, a a smaller one can make a significant difference in affordability. 

All real estate is local, and all lending is individual. Rising rates don’t always shrink the amount you qualify for. Quality lenders will fully go through your financial profile, and run the numbers to find something that is good for you.

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