Rates Went Up After I Got Pre-Approved. Can I Still Buy a House?
It’s a common story: mortgage rates rose after you got pre-approved. You worry that the higher payment will disqualify you.
Will your maximum home price drop?
Here’s what rising rates could do to your pre-approval and what to do next.
The Impact of Rising Rates on Your Pre-Approval
Under the following assumptions, a 0.25% rate increase reduces your buying power by about $10,000.
However, your price hit could be more or less depending on your income, loan amount, and debts. The table below shows the effect of rising rates based on certain assumptions.
Mortgage Rate | Max Home Price* |
6.25% | $420,000 |
6.5% | $410,000 |
6.75% | $400,000 |
7.0% | $391,000 |
7.25% | $382,000 |
7.5% | $373,000 |
Assumptions: 5% down conventional loan, $100k annual income, $500 monthly debt payments, $450 tax/insurance, 0.53% PMI, 43% backend DTI. Estimates Only. Not a commitment to lend.
Rising rates don’t always affect your buying power, though. Sometimes, your debt-to-income (DTI) ratio increases without affecting your qualification status.
Some mortgage types allow debt-to-income ratios up to 45%, but as high as 56% for strong applicants using FHA loans. In the below example, the borrower would likely be approved for all scenarios except perhaps the 7.5% rate, where DTI rises above 45%.
Mortgage Rate | Home Price | Debt-To-Income Ratio |
6.25% | $400,000 | 41.5% |
6.5% | $400,000 | 42.2% |
6.75% | $400,000 | 43% |
7.0% | $400,000 | 43.8% |
7.25% | $400,000 | 44.5% |
7.5% | $400,000 | 45.3% |
Assumptions: 5% down conventional loan, $100k annual income, $500 monthly debt payments, $450 tax/insurance, .53% PMI. Estimates Only. Not a commitment to lend.
Because rising rates may affect your approval, what should you do if rates rise?
What To Do if Rates Rise After Pre-Approval
If you notice rates rising, take these action steps.
Contact Your Lender
Reach out and have your loan officer re-approve you at today’s rates. He or she may have a lot of clients looking for homes and may not automatically approve them again. Know your true buying power before looking at more homes.
Consider a Rate Buydown
In some cases, you can pay more money upfront to reduce your interest rate. Ask your lender how much it would cost to get your previous rate.
Look at Lower-Priced Homes, Just In Case
It’s never bad to lower your expectations. Look at slightly cheaper homes in case you have to cut your homebuying budget. Make a plan whether you will move farther from the city, compromise on square footage, make do with one less bedroom, get a smaller yard, or sacrifice something else.
Look at Fixer-Uppers
There are often homes on the market that no one else wants due to their condition. Look for homes that have been sitting for at least 30-60 days. You can offer less than the asking price and request more in closing cost and rate buydown assistance. Then, get a renovation loan to finance repairs.
Make a Bigger Down Payment
Lowering your loan amount won’t reduce your payment much. However, increasing your down payment from 5% to 10%, for example, might help you get approved with a higher debt-to-income ratio.
How To Keep Track of Mortgage Rates During Your Home Search
The best way to keep track of mortgage rate changes is to check real-time mortgage rate providers every few days during your home search.
Skip sources like Freddie Mac Mortgage Rate Survey, as the data is 3-4 days old when published.
Rather, look at Mortgage Research Center, Mortgage News Daily, or Optimal Blue for daily rate updates. The rates displayed on these sites are averages only, but they will tell you whether rates have climbed significantly in recent days and weeks.
Note that mortgage rates don't follow the Federal Reserve's rate, so you probably don't need to get approved again if the Fed hikes rates.
Get a personalized rate quote from a lender here.
How Much Should Rates Rise Before I Get Re-Approved?
You should check with your lender if rates have moved more than 0.25% since you got pre-approved. In the above example, buying power was cut by $10,000 with a quarter point higher rate. This could be enough to price you out of the top end of your approved price range.
Not Just Rates: Other Items Can Disrupt Your Approval
Watch for other estimated costs that can rise after pre-approval. These can reduce the home price you can qualify for.
Property taxes
HOA dues
Homeowners insurance rates
Notify your loan officer when a home you’re considering comes with higher costs than estimated.
Get Started On Your Home Search
Changes can always happen after you get pre-approved. But it's still worth doing. It’s easier to update a pre-approval when you find a home than to start from scratch.
Request your pre-approval from a lender so you can begin your home search.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
