How The Rise in Mortgage Rates Impact Average Buyer's Ability to Qualify for a Loan

Armen Hareyan's picture
Impact of Today's Mortgage Rates on Buyers

While the current mortgage rates are still under 4%, yesterday the average 30-year mortgage rates rose to 3.82 percent. I asked my friend Park McCants from Eugine, OR, a retired Realtor and developer with 30 years experience, what the slight rise in rates means for the average American home buyers and the real estate industry in general. Here is McCants in his own words.

An uptick in interest rate of any kind may make it a bit tougher for perspective buyers to financially qualify for a mortgage. Here's why. In "Pre-Qualifying" a consumer for a mortgage loan, a debt to income ratio is calculated, living expenses are added in, and depending on the applicant's credit score a mortgage loan rate is calculated. And only then is a "sustainable" monthly mortgage payment is dictated.

In other words, Susie and Jim may qualify for a mortgage loan up to $200,000 based on their present income, income to debt ratio and finally, F.I.C.O. credit score, but often no more than that.

Mortgage loans are secured against the subject property based on contingent factors including, but not limited to: Condition of property, Appraised Value, a "clear" title report, verification of funds on hand ( down payment,etc,) and the approval of the lender's loan underwriter.

An increase in the published 30 year mortgage rate can impact a potential buyer's ability to qualify for the loan due to the indicated increase in monthly mortgage payment as restricted by their financial ability to maintain a sustainable mortgage payment.

While a 1/4 point increase in the base interest rate doesn't seem like much on the surface, in practice, $25 to $50 per month additional interest can sometimes make the difference between qualifying for that dream house or waiting for the interest rates to drop.

Also Read: Mortgage Broker Suggests Shifting Focus from Rates to Negotiating Power

Park McCants is a retired Realtor and developer with 30+ years experience in Residential and Commercial purchase, sales and investment.

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