If you’ve been keeping an eye on interest rates lately, you might be wondering how they’ll affect your ability to buy a home. While rates may fluctuate over time, there are still smart strategies qualified buyers can use to protect their buying power and move forward with clarity in today’s housing market. Whether you’re just starting your search or already dreaming of moving day, a little knowledge can go a long way!
Understanding Your Buying Power
As a potential homebuyer, your buying power is essentially how much home you can afford based on your income, debt, and current interest rates. But it’s not just about the total amount you qualify for, but rather how it can affect your monthly mortgage payment. As interest rates rise or fall, your buying power will shift with them. Even a small change in rates can affect how much home fits comfortably within your budget.
Your buying power is your combined purchasing potential, and can include the following factors:
- Your income
- Your existing debts and monthly expenses
- Your credit score
- Your down-payment amount
- The proceeds from the sale of your current home, if applicable
- The cost of living in your desired area
- Interest rates
Smart Strategies to Potentially Maximize Your Buying Power
While you can’t control interest rates, there are a few tools that may be able to keep your buying power as strong as possible!
- Rate Locks – If you’re actively shopping for a home and interest rates appear to be climbing, a rate lock may let you “lock in” the current rate for a set period of time. This will give you peace of mind that your rate won’t go up before closing. Please note that there may be an additional fee for a rate lock. Please contact your lender to discuss.
- Buydowns – A buydown, such as a 2/1 buydown, is a financing option where your interest rate may be reduced for the first one or two years of the loan. It offers a lower initial payment, which may be helpful if you’re expecting your income to increase or want to ease into your mortgage payments. It is important to know that after your buydown period, your interest rate may increase and may increase your mortgage payment. Please review this option with your lender in detail to fully understand this impact.
- Adjustable-Rate Mortgages (ARM) – An adjustable-rate mortgage offers a lower introductory interest rate than a fixed-rate mortgage, which can help boost your buying power in the short term. After the initial fixed period, the rate adjusts periodically based on market conditions. It is necessary to understand how often your rate may adjust and the impacts of the adjustable rate on your monthly mortgage payment. Please ensure you understand all possible impacts with your lender.
- Builder Incentives – If you’re considering a new construction home, ask your builder or their preferred lender if they offer any rate incentives or forward commitments. Using a builder’s preferred lender may allow the builder to offer reduced rates to eligible homebuyers on select homes. Please note: Forward commitments and other rate incentives may not be available on all homes or in all markets. Please check with your sales team to discuss your options.
Working with a knowledgeable lender can help you explore these strategies and more to help find the one that fits your homebuying needs! Reach out to your Pulte Mortgage loan team to learn more!
