By now, you’re aware that May and June brought the Federal Reserve’s largest rate hikes in 22 years and those increases are affecting home mortgage rates. This time last year, mortgage rates were around 3.3% compared with today’s 6.0%. As the real estate market adjusts to this change, it’s easy to think that rising interest rates will only negatively impact buyers, but that’s not necessarily the case.

Here’s what you need to know about how rising interest rates are affecting buyers

1. High-interest rates mean diminished buying power.

The biggest impact we’ll see with high-interest rates is diminished affordability for Buyers, meaning Buyers must look at lower-priced homes or be able to afford a higher monthly mortgage payment. Each 1% increase in the mortgage interest rate raises the monthly payment by approximately $300. If your monthly mortgage payment budget can’t be stretched, then you’ll need to lower your home purchase price by approximately $40,000 to $50,000 to keep the payment within budget for each 1% increase in mortgage rate.

2. Be patient; the market will start balancing out.

The good news for Buyers is that after months of multiple offers and bidding wars, we’re going to see the market balance out a bit, meaning homes will still sell but we’ll see fewer offers, and sale prices will be at or closer to list prices. As people realize they’re facing higher monthly payments, many are choosing to take a break from house hunting. This fallout will soften the market allowing those who can accommodate the rate increase to see less competition and a greater chance of getting an accepted offer.

3. Shop for a full-service local mortgage lender and compare interest rates.

It will be even more important to work with an experienced and trustworthy lender to get pre-approved for a mortgage. A good lender will give you a clear idea of monthly payments, current rates, and cash needed to close on a home purchase. With more Buyers dropping out of the market, loan volume will go down, causing mortgage companies to compete for your business. We recommend getting 2-3 quotes so you can compare terms, such as APR, estimated closing costs, and discount points to see which loan program works best for you. Most importantly, you should work with a local lender that is personally available, offers a high level of expertise, and understands your total financial situation. Don’t believe the web deals. If an advertised rate is too good to be true, 99% of the time it really is too good to be true. These lenders often hit you with more fees and may not be reliable.

The rising interest rates do not necessarily mean you should wait to buy a home. It does mean that you should properly prepare to ensure you find the perfect home at a price that makes sense for you. If you’d like to research current interest rates, please contact us for mortgage broker recommendations or to discuss your home purchasing plan.