Interest rates: What are they and how are they affecting homebuyers in 2022?

Interest rates have been in the news quite a lot this year. Eager homebuyers are navigating a challenging housing market while they watch interest rates soar, hoping to beat any further increases and finally sign a contract on the perfect home. Rising costs on just about everything, like food, gas and everyday services are worrisome for many. All of these things aren’t predicted to decrease in price any time soon, unfortunately. So how does all of this affect you, the hopeful homebuyer? We explain below. 

What is an interest rate on a home?

An interest rate is a set percentage rate that you pay on a loan (your mortgage). You begin with a principal loan amount (the amount you purchased your home for) and then pay interest to your lender on top of that price to be able to borrow the money. It’s broken down on your monthly mortgage statements, too. You’ll see the amount that was applied to your principal and the amount you paid in interest. As the amount owed decreases, the amount of interest you pay monthly will decrease. Your interest rate also depends on the economy and market conditions.

How is a homebuyer’s interest rate calculated?

Many factors go into calculating a homebuyer’s interest rate. Traditionally, a mortgage company will look at the length of the loan, the total loan amount, your credit score, inflation, housing market conditions, and your down payment among other things! The type of loan you’re getting, such as a conventional loan or FHA, also factors in. 

If you know anything about United Housing, though, you’re aware that we’re in the business of making homeownership possible by making it affordable! Our programs and resources are designed to keep housing affordable and provide attainable mortgages to those who may not qualify for traditional loans. Take our Cherry Mortgage for example. We created this loan with fair qualifications that we set because we’re your lender versus a large, national organization. And that includes the interest rate. So when traditional mortgage rates are on the rise, we work to ensure purchasing a home through UHI remains affordable.

Why does this matter now?

If you recently went through the process of getting prequalified for a traditional mortgage, it’s possible that you found – based on current market interest rates – it won’t actually be affordable at all. Even if a homebuyer is prequalified for a certain amount, the rising interest rates can push them out of that amount because as those rates rise, so does a buyer’s monthly payment. Or, maybe all of the negative news around interest rates has discouraged you from even trying. But as mentioned above, our Cherry Mortgage is meant to be a solution to this very challenge. If you’ve hit roadblocks with a mortgage lender, partnering with United Housing may be the option that helps you achieve your dream of homeownership. 

To learn more, we encourage you to check out our Homebuyer Education Courses. It’s a great first step for any new homebuyer and is also a requirement of our Cherry Mortgage. We host classes Tuesdays, Thursdays and Saturdays, so sign up now.