Ameritrain 1 Apr , 2022 Ameritrain

When it comes to real estate, there will always be upswings in the market that will impact homeowners’ mortgage payments and overall financial health.

But in 2022, that is an understatement.

Mortgage rates have quickly risen to the highest levels seen since the first COVID-19 lockdowns were issued in 2020, and for many Americans in the market for a home loan, the added pressure of rising rates has complicated an already monumental decision.

With a fluctuating market here to stay, the Federal Reserve is taking two approaches to combat inflation — it plans to raise interest rates and to stop its purchases of Treasuries and mortgage-backed securities. And both actions are likely to have an impact on mortgage rates.

But while all that is being worked on a macro level, you may be wondering how you can help your clients guard their most significant investment and their finances against rate increases. And if they are concerned about rates being on the rise, here are a few tips to help them test out their fiscal well-being.

Debt-To-Income Ratio

It’s beneficial for future homeowners to determine their DTI ratio prior to purchasing a home. Given how much competition there is for the few homes that are up for sale, many buyers will find that they need to be pre-approved before making a purchase an offer. And since debt and housing costs are constantly fluctuating, calculating this number again can be a wake-up call. By adding up their monthly expenditures (including any debt), and dividing that number by their pre-tax income, buyers will be able to determine their DTI percentage. While it’s ideal to have a percentage of less than 28%, if expenditures have risen above this number, and with an above 7% inflation rate, the chances are good that they may. Consequently, it may be time for buyers to look at their monthly budget and see what they can cut out.

Emergency Savings?

Many people make a habit of putting money into their retirement funds each paycheck, but it’s equally important to have emergency savings you can access in the event of car repairs, home maintenance issues, or an unforeseen medical problem. While it’s often suggested that a person should have a minimum of 3 months of expenses at their disposal, saving more than this can make you even more prepared in the event that a rate increase requires you to dive into other funds.

Budget Review

It’s easy enough to have a monthly budget, but the hard part for most people is sticking to it on a day-to-day basis. In the strange current economy, it could be challenging for people not to veer off the trail a little bit in this regard. Future homeowners will need to sit down and carefully review their expenditures and determine what their financial outlook would be if a significant interest rate bump were to take place in the coming months. If there’s very little cushion and no money for savings, it may be worth your time to talk to your clients about the value of crafting a new budget that gives them more wiggle room.

Many people are uncertain about what the short-term economy will bring for their mortgage rates, but by reviewing their budget and maintaining emergency savings, they can be better prepared for the future. If you’re currently working with buyers hoping to purchase a home soon, you may want to check out our other posts on valuable tips that your clients may find very useful.

About Ameritrain

Ameritrain Mortgage Institute provides NMLS approved mortgage education for Mortgage Loan Originators. Services include mortgage training, professional development, learning management, and consulting.

MLOs may choose to take our courses in the way which serves their needs best, whether it is in webinar, live classroom, self-guided online, or instructor-led online form. We are dedicated to giving our students the best experience to receive new or continuing education and certification.