What’s in Store for the Future?

We can learn from the past to plan for the future, but we cannot predict the future just from looking back. The record low interest rates of 2.65% in January 2021, due to the pandemic, are unlikely to return. Let’s not forget the 16.63% rates in 1981 that no one wants to see again. Since 2021 wasn’t that long ago, many of us see the current rates of 6-7% as astronomical.

The interest rates are just one piece of the puzzle that determines the affordability and likelihood of buying a home. While you cannot control the swing of interest rates, the type of loan and your credit score are known variables.

This is where working with an experienced agent and lender is helpful. Your financial situation, down payment funds, home price, and budget for monthly payments will help with that decision. There are several types of home loans. We’ve listed the most common below.

Types of Loans

  • Conventional Loans: These are not backed by the government. Buyers must pay a downpayment of 3-20% along with income and credit requirements
  • FHA Loans: Insured by the Federal Housing Administration to help low and moderate borrows without high credit scores. They require a smaller downpayment of about 3.5% of the purchase price.
  • VA Loans: Loans guaranteed by the Dept. of Veterans Affairs. They are available to veterans, active duty, and surviving spouses. No down payments or mortgage insurance required.
    • Fixed-rate: Rate remains the same for the entirety of the loan
    • Adjustable-rate: Rates can change based on the market, usually after an initial fixed rate period.

Credit Score

Depending on how high or low your credit score is can also impact your rate. Credit scores are broken down into groups ranging from 300 to 850

  • Poor 300-579: If you qualify for a loan, you are likely to have a higher interest rate and additional fees.
  • Fair 580-669: This range may make it difficult to qualify for a loan with competitive interest rates.
  • Good 670-739: This shows the lender you are a less risky applicant and will likely make you competitive for lower rate options.
  • Very Good 740-799: You will likely qualify for the best rates available.
  • Exceptional 800-850: With this score you will easily qualify for the best rates available.

Good News on the Horizon?

Current interest rates have risen in a short period of time. Forecasters predict, “The economy is likely to slow over the coming months, and as a result, mortgage rates will still end up lower than what they currently are by the end of 2023, Channel said. They aren’t likely to plummet, but Channel said he expects they’ll land somewhere closer to 5.5% than 6.5%.” Lending Tree

Another variable involved in this process is inflation and the economy. As interest rates rise, home prices may slightly fall. Although there is still limited inventory, this could help home buyers. Only time will tell, but based on the predictions, rates aren’t likely to dramatically increase or decrease. That means no double digit rates, but you might be waiting forever looking for 3% rates to return.

What Does That Mean for the Summer?

“However, mortgage rates could fall to the range of 5.5 percent by the spring and summer of 2023, says National Association of Realtors® Chief Economist Lawrence Yun.” BankRate

A slight dip in interest rates is expected, which is good news for those planning to buy a home over the summer. Looking ahead to the summer of 2023, it is difficult to make specific predictions about interest rates, as they are influenced by a wide range of economic factors that can change over time. However, many economists and analysts believe that interest rates are likely to remain relatively low in the short to medium term.

If you’re planning to buy a home, pay attention to the rates but don’t let that be the driving factor in your decision. Relative home value, your ability to qualify for a loan, and the personal financial benefits should all be considered.

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