The federal funds rate doesn’t directly adjust mortgage interest rates. However, the Fed rate does influence the amount of funds banks have available to lend coupled with how much banks are required to pay to borrow money. Therefore, a Federal Reserve rate increases, 99 times out of 100 it causes mortgage rates to rise for borrowers and affect their home affordability.
Although, there is some good news: If you decided to lock your rate before the increase, you’re in a good situation. Provided your closing date is well before the lock expiration date, you will be assured that rate on your closing documents. On the other hand if you don’t signed a purchase agreement or need to wait for your home to be built, you’ll have to confirm with your loan officer about your options to lock a rate lock such as 90, 120, or 180 day lock options.
It can certainly be a huge stress to think what will happen with rates during the process as you look for a home. It’s helpful to remember that interest rates aren’t the only element of the housing market that will influence your home buying experience.
As home demand changes prices will also vary up and down. So although the interest rate may be higher for your loan, some or all of it may be be balanced out by a lower contract sales price. The best advice is to stay in touch with your real estate agent and loan officer, so you may modify your home search and finances when necessary.
How the Fed Rate Hike Affects Sellers
We’re still in a seller’s market but reports by realtors is many major cities including those in California and experiencing price reductions. Buyers and Sellers are getting close to equilibrium.
Even though the typical expectation from a Fed rate increase would be less demand for luxury home purchases, some real estate professionals forecast the high demand for housing throughout the country will not abate. Early reports indicate those experts are incorrect as demand and loan application has dropped significantly in June 2022.
Another item you will want to seriously focus on is the pre-approval situation. Try to raise your credit scores if they are not already near their maximum for your next home. Ask your listing agent to make sure each potential buyer has been evaluated carefully and that any pre-approval letters they presented are recent. A pre-approval letter dated over 30-days ago may have problems today and that may affect your next home purchase.