When you get pre-approved for a mortgage, it is based on a particular recurring payment. The mortgage rate is estimated (as well as other figures such as property taxes and hazard insurance). Mortgage rate changes affect NH pre-approval amounts since it alters the principal and interest portion of the total payment. It is important for home buyers to understand this because a fluctuation in rates will affect homes that may be considered.
Mortgage Rate Changes
Mortgage rates can adjust on a regular basis. At certain times, they might even adjust multiple times within a single day. As a home buyer, you will not know what your specific mortgage rate will be until you identify a home, have an estimated settlement date, and lock in the mortgage rate. Thus, there is some uncertainty, particularly for price sensitive buyers. It is useful to know what estimated mortgage rate was originally used to calculate your pre-approval and to update the pre-approval. If mortgage rates are constantly or dramatically changing, connect with your lender prior to preparing an offer on a listing to confirm that you still qualify to purchase it.
Mortgage Rate Changes Affect NH Pre-approval Amounts
Mortgage payments normally include principal, interest, real estate taxes, homeowners insurance, and mortgage insurance (if applicable). For the purposes of this example, we will only discuss the principal and interest portion. Assume that a buyer is pre-approved for a $300,000 purchase price based on a 30-year loan, 3.5% down payment, and 5% mortgage rate. The principal and interest monthly payment is roughly $1554. If the mortgage rate rises by half a percent, that same home buyer qualifies for only $283,638. That is a reduction of over $16,000 in the list price, which will lead to a smaller home. Alternatively, if mortgage rates lower by 0.5%, the maximum price increases to $317,843. The table below demonstrates the impact of additional increments for this same buyer based on a mortgage principal and interest payment of $1554:
|Mortgage Rate||Loan Amount||Down Payment||Purchase Price|
Being An Educated Buyer
Be sure to ask your loan officer about the total monthly payment amount for which you qualify. From there, you can better determine the feasibility of properties before making an offer. Remember that there are different calculations for the total payment: mortgage rate, real estate taxes, property insurance, and mortgage insurance. If you intend to purchase a property close to your maximum pre-approval amount, then it will be very important to watch mortgage rates. Your mortgage consultant and real estate broker can assist you with this analysis and provide other information on how mortgage rate changes affect NH pre-approval amounts.