The Government Debt Ceiling and What it Means for Home Buyers

August 2nd is the deadline for the officials in office to make a decision as to what they are going to do about the U.S. government debt ceiling. The current debt crisis is probably  the biggest factor over the mortgage rates right now and once investors feel there is any uncertainty about the U.S. government’s ability to guaranty its debt, Treasury rates as well as mortgage rates will rise according to Guy Cecala of Inside Mortgage Finance. Guy is correct, and the problem is that many Americans may not realize how this whole crisis will affect them.

The mortgage interest rates have been in historic low range for a long time now, refinances are abundant and this state of low interest rate euphoria is bound to end if the parties in the White House don’t come to an agreement and soon.

Many worry about the interest rates rising, however, the fact of the matter is many of the qualifications needed to obtain a historical low rate on a conventional 30 year fixed rate loan are out of reach for today’s buyer. Given the fact these types of rates require massive down payments and sparkling credit histories. Today’s buyers are more comfortable in the once looked down upon FHA loan, but even the structure of the FHA loan limits and qualifications could be in jeopardy of changing as well as the interest rates rising.

The bigger problem with this whole debt ceiling issue, is the adjustable rate mortgages. If the interest rates rise, you can bet we will start to see even more foreclosures and loan defaults. Finally after a couple of years the overall number of foreclosures were starting to drop in primary mortgage defaults, so again, we have to look beyond the rate to what the rate effects.

Buyer’s that are in contract right now need to be proactive, work with their lenders and real estate professionals to ensure that they get to the closing table as soon as possible. We don’t want to make it seem like the sky is falling, but if something went wrong during the transaction where a buyer went past their allocated time to have their rate locked at a favorable amount, then had to redo their qualification, it is quite possible the rate they may be higher than what they originally were locked in at previously.

Failing to close now could cost you more in the future. Although you might have confidence issues in today’s market, you are still buying at historic lows on both price and mortgage rates. Failing to close today could put the home of your dreams out of reach if rates rise.
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