Between high home prices and rising interest rates, Salt Lake City home buyers are wondering what, if anything, they can afford. With the announcement that the Fed is raising rates by 75 bps (.75%) now with another 100 anticipated bps (1%) by year end and additional increases in early 2023, anxieties are at an all time high. But buyers still have options. Here is the best mortgage advice for buying a home in Salt Lake City in 2022.
TIP #1: Get Pre Approved
The truism, “What you are afraid of is never as bad as what you imagine” is perfectly applicable to the moment buyers find themselves in. The best advice for anyone thinking of buying a home is to get pre approved. Pre approval gives a complete picture of where you are and exactly what you have to work with. And if the outcome isn’t as hopeful as you were planning, it gives you the chance to readjust your expectations or work on repairing credit or improving loan viability.
TIP #2: CONSIDER A RATE LOCK
With the state of the current market, now is the perfect time to consider a rate lock. A rate lock guarantees an interest rate for a specific period of time. Movement Home Loans offers lock & shop rates with 45-, 60-, 90-,120-, 150- and 180- day lock options on conforming loans. We also offer up to three extensions and relock options for those who miss their purchase window. You should strongly consider a rate lock if you are:
- Worrying about losing pre approval with rate increases.
- Looking for a stronger and more reliable offer.
- Concerned about affordability and rate increases.
- Not planning to change your application after approval; there can be no changes to this type of loan.
A rate lock doesn’t need to be restrictive. It can be used alongside appraisal waivers. And extensions are always an option, but may mean higher fees
TIP #3: Look Into an Adjustable Rate Mortgage (Arm)
Adjustable Rate Mortgages (ARMs) got a well-deserved bad rap during the subprime crisis of 2007-2010. But the ARMs of today are a far cry from the ARMS of the past. Qualified ARMs meet the same high standards of qualified fixed products with rigorous underwriting requirements. And there are limits (or caps) on how much an ARM can increase initially, during periodic adjustments, and over the life of a loan.
Choosing an ARM can be a significant savings in terms of monthly payment and equity built. A 7/6 ARM right now offers rates anywhere between .5%-1% lower than a 30-year fixed term loan. In this case 7 indicates the number of years at a fixed rate. The second number refers to how often the rate changes after the initial adjustment, i.e. 6 months. Recently, I did an analysis for a client who was borrowing $950,000. The 30 year fixed rate was 5.25% and the 7/6 ARM rate was 4.125%. The savings over 7 years on the ARM loan was around $58,000!
It is also important to note that U.S. homeowners hold their mortgage for an average of 6 years. Meaning, most homeowners will sell or refinance before the 7-year adjustment period is met. This is a great product for someone who plans to move or refinance before their loan term is up.
TIP #4: Salt Lake City Real Estate Is Still a Great Place To Invest
The Salt Lake City real estate market has recently been the focus of a couple of big national and local news stories. The NY Times reported that Salt Lake was the most popular spot in 2021 for members of Generation Z seeking a home loan. Last year, 16.6% of mortgage offers went to Gen Z borrowers. Subsequently, a Deseret News feature reported homebuyers are still scrambling to buy, fueling a highly competitive environment.
Dejan Eskic, senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute is quoted as saying, “We have the high rates, but we don’t have the inventory…There’s [now] more to choose from, but we’re still like 49% below where we should be this time of year.”
Bottom line: Gen Z buyers and still-low inventory rates are offsetting rising interest rates in Salt Lake and keeping the local housing market moving along. There’s no doubt Salt Lake City will continue to be a great place to invest in real estate.
Don’t Forget You Are Paying 100% Interest When You Rent
While buying a home is more expensive than it was a year or two ago, it will never be as costly as renting over time. Even with mortgage rates well over 5%, this does not come close to the 100% you pay in interest renting every month. And then there’s the potential home equity you lose every month renting as well. Renters can also expect housing affordability to continue to take a hit over the coming month and year. A recent Corelogic study found that nearly three-quarters of landlords (72.1%) plan to raise the rent of at least one property this year. Owning real estate is still one of the best paths to building wealth.
Tip #6: Keep In Mind Today’s Rates Are Still Lower Than Historic Averages
The average 30-year fixed-rate mortgage in 1971 was 7.54%. Other than a spike in the 1980s, rates have trended lower over the last decades. The historically unusual low rates resulting from the Great Recession and the covid response of 2022 are outliers. Simply put, what we are adjusting to now is a new, but old, normal. This Federal Reserve graph shows historical 30-yr fixed rates beginning in 1971 and gives context to current rates. Keep in mind, where we are at now is still historically low.
Cori Pugsley is a Mortgage Advisor with Movement Home Loans, a locally-owned and operated mortgage brokerage offering nationally-competitive rates, astute counseling and reliable closings. Contact her with questions or to apply for a loan.