As we all collectively watch mortgage interest rates and inflation change, a main question a potential home buyer may have is about their ability to obtain a home loan. For those home buyers paying totally in cash this isn’t a concern,. But for buyers, both experienced and first-time buyers, it can be anxiety-inducing to get a home loan right now. Yet another drawback of inflation and ever-rising interest rates is the possibility that it’s harder to qualify for a home loan. Just how much harder is it to get a home loan when interest rates change? Below are some things to consider because even though the economy presents new challenges, it shouldn’t keep you from living a life you dream about:
Buying Power
During inflation, as the costs of goods, services and products rise, due significantly to supply chain issues, the overall power of the dollar weakens. The same salary or investment today doesn’t hold the same value as it did a year ago and could be the same in a year from now. However, real estate doesn’t follow the same pattern as the general market. When going to qualify for a home loan, this will factor in as inventory of your salary, investments and other assets are taken. In fact investing in real estate, even now, is a smart investment choice and a great fighter against inflation. Also, making sure you have a low debt-to-income ratio and that will help your buying power.
Home Prices
There are indications that home prices are slightly dropping in Colorado and the Metro Denver area, but they are still higher than they have been, historically speaking year over year for the last 10+ years. With home prices higher and the value of salary changing, then this can come into play when considering loan programs. Be sure to calculate your estimated monthly payment and make sure that it wouldn’t stretch your budget too thin. Remember that you can refinance in a few years and likely get a more desirable payment at a lower interest rate.
Credit
During challenging economic times some people may rely more heavily on credit, and if it is not responsibly used,, then a credit report score can take an undesirable hit. This can impact everything from your down payment requirement, interest rate, and may even disqualify you for a home loan, depending on how low the score is. To be noted, some lenders have set their own minimums for an acceptable credit score based on loan type. As a range, some lenders can set their minimum credit score somewhere between 500-620 and it also depends on loan type. Typically an FHA loan allows the lowest credit score which can be something to look into if you’re in the process of increasing your credit score.
Employment
On top of inflation and changing interest rates, we’re also experiencing a hot job market. The post-covid employment market has brought a lot of job changes and possible periods of unemployment which can impact a home loan. For example, a lot of home loan applications require two years of steady employment but for those who experienced lay-offs in covid or post covid, this can possibly cause an issue in qualification. However, if the rest of your application is strong and you have other assets, savings or a healthy down payment then this shouldn’t be too much of a problem.
Do you have concerns or questions regarding how to acquire a home loan right now? Are you in the market to buy or sell your home? Call and text me at (720) 323-4176 or email me at [email protected]
