The last few years have been anything but normal. The recent volatility of mortgage interest rates has understandably made many buyers skittish. But with careful planning and the right team of experts, you can still get reasonable rates even with wild markets. To do that, we’ll share a few things you must know about mortgages and interest rates in 2022. 

Buying during Interest Rate Volatility

A lot of buyers have gotten sticker shock over the last few months. Yes, the costs of properties skyrocketed as the demand far outweighed the supply of available houses on the market. But now interest rates have begun swinging wildly - at one point 0.75% within a matter of three days. (For reference, usually, we’ll see that big of a shift over the course of a year.) 

So, locking in the best rate can literally mean the difference of hundreds or thousands of dollars for monthly payments. Our advice: lock in early and make sure your lender can do a float-down option at no cost. Beware though: you can only do one float down so choose your timing wisely with your lender’s advice.

How Does Inflation Affect Interest Rates?

At the time of this writing, inflation has hit a 22-year high in the U.S. This naturally drives up interest rates on mortgages (among other things). In a way, we see this as a good sign of us moving past COVID, of getting close to normal. 

Why? The Fed suppressed interests rates to near 0% during the pandemic to stabilize the economy. They also printed more money, which some forget was never “free.” The larger supply of cash meant the dollar had less value. So, inflation happens. To cool that inflation, the Fed raised interest rates. Hopefully the worst inflation adjustments are finished although we may see a few smaller tweaks. 

Changing Requirements in a Post-COVID World

The biggest changes in mortgage approval requirement impact self-employed borrowers. During COVID, banks required a full year of business account bank statements for pre-qualification. This was meant to show that a business continued to make income during the pandemic. However, Freddie Mac and Fannie Mae have relaxed this back to three months of bank statements.

Any self-employed investors looking to expand their portfolio should consult with their financial planner and CPA on their acquisition process.

Another Housing Market Crash?

2008 still feels fresh in a lot of buyers’ minds. And while no one can say for certain, many experts don’t expect to see another housing in 2022. 

This is mainly because lending laws have changed drastically as a result of the crash in 2008. So even if housing prices keep rising with more demand than supply, people won’t get approved for mortgages they can’t afford.

How Do I Find a Good Lending Officer?

Too many people focus solely on the interest rate a lender offers. Lured in by companies advertising much lower interest rates than competitors, they soon discover the catch: massively higher origination fees. Asking the right questions will help you identify these bait-and-switch losers:

1. How do you calculate estimated monthly payments with interest rate fluctuations? Do  you use worst-case scenarios? 
2. Do you offer a no-cost float-down option?
3. What are your rate and origination fee terms? 
4. Based on credit score and downpayment percentage, which loan program do you think best suits my situation? 
5. Can show show me a side-by-side comparison of a conventional loan and and FHA loan?

A Word about Gifts

A lot of buyers, especially first-time primary home buyers receive gifts to cover the down payment. While there are no limits on the amount of gifts you can receive, they do require some additional paperwork. You’ll need your bank statement showing the deposit and a letter from the benefactor on the gift’s purpose. One more thing: the benefactor show the bank statement with gift withdrawn (to prove it came from a legitimate source). Some people might get weird about sharing this information so make sure they know this upfront and why.

The good news for real estate investors? Monthly rent rates still outpace mortgage payments. So even with higher mortgage payments from higher interest rates today, you can still make a profit on your leases. Plus, you can refinance to better rates in the future. 

Have more questions or need advice on lenders in Chicagoland? Reach out! We’re always happy to help fellow investors find the right resources. 

As a property management company in Chicago, we at GC Realty & Development, LLC, are investors ourselves. Each employee of GCR&D are Chicago property managers and landlords themselves, and understand how to manage properties from the owner’s perspective. Get in touch with one of our experts to answer any questions and maximize your rental property profits. 

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