Q: How will these rising mortgage rates affect our ability to buy a new home?
A: Financing is a key consideration when you're thinking about building a new home. Researching and securing the best loan for your home is no small feat. For many years, we've enjoyed historically low interest rates for home loans. Now there are signs that this is changing. How high will rates go and how much will that matter to you?
I'm not a financial expert, but I did come across some interesting information provided by people who know about these things. Here are a couple of observations from two different perspectives about what we can expect this year. One is from The Washington Post and the other is from Forbes. I'm going to distill a few of their comments.
The Post offers an opinion on what they call good news about financing. While acknowledging that rates are increasing somewhat, they point to the fact that credit is actually easier to get than it was right after the recession. They also point out that the Federal Housing Finance Agency (FHA) plans to increase lending limits for 2017. While any loan exceeding $417,000 used to be considered a jumbo loan, that amount will be increased to $424,100. In a similar move, the FHA is expected to increase loan limits from $271,050 to $275,665. However, they do caution that lenders have not necessarily loosened their stringent requirements.
As you might imagine, investment-oriented Forbes had some interesting insights as well. While it's well worth reading their take on the situation, here's a quick summary of their eight things housing experts expect to see in 2017.
- Prices will continue to rise—but more slowly.
- Affordability will worsen.
- Mortgage rates will be volatile.
- Credit availability will improve—maybe.
- Supply will improve but remain short.
- More Millennials will become homeowners—and renters.
- Competition will grow fiercer.
- Political uncertainty will be replaced with policy uncertainty.
How high will rates go? Nobody is ready to commit to specific figures. And if the experts at The Washington Post and Forbes won't say, I'm not going to either! So where does that leave you when it comes time to build your home?
Here's my take. Even though rates have increased moderately, financing is still very affordable. Don't let a slight increase derail your dream of building your home and don't be in a hurry. Make sure you take the time to shop around and get the best loan possible.
Stay within your means. Be realistic when budgeting for your home. Don't bite off more than you can chew when setting your budget. On the other hand, don't skimp in areas just to save a buck or two.
Make sure the home you plan to build will fit your lifestyle now—and for years to come. Again, don't rush things. Think through the features of your new home and how they will fit your lifestyle—both now and as your needs change.
Rates are headed up, but don't let slight increases push you into making a quick decision. On the other hand, don't hold off in hopes that interest rates will drop. Nobody sees that on the horizon for a while.
Powell Homes & Renovations is a four-generation Seattle area homebuilder and design-build remodeler, plus a member of the Master Builders Association of King and Snohomish Counties.