FHA Loans and Rising Mortgage Rates In 2023

March 1, 2023

In late February 2023, CNN.com reported mortgage rates had risen for the third week in a row, putting interest rate averages squarely in the mid-six percent range. CNN reports that a year prior, the fixed interest rate on a 30-year mortgage was closer to 4%.

What Causes Mortgage Loan Rates to Climb

Various factors can force a change in mortgage loan rates. Investor reaction to economic news is one. Another is how investors react to Treasury yields. 

In late February, CNN reported that the 10-year Treasury bond yield hit its highest peak since November last year. Some view that as an essential detail in the current rate environment. But it’s not the only one.

The Fed’s Interest Rate Adjustments

Another factor in current mortgage loan interest rates? How the Fed has adjusted the Federal Funds interest rate. 

Those adjustments do not directly change mortgage rates, but they do change how costly it is for the lender to approve home loans. The more it costs your lender, the higher interest rates on your mortgage are likely to go.

Even with the most recent round of Fed actions to stop inflation, mortgage rates are in a phase rife with uncertainty. Some expect things to improve by the third quarter of 2023, while others aren’t so sure. 

What’s a house hunter to do?

Plan Your Home Loan Carefully

In a time of substantially higher mortgage loan interest rates, borrowers should be more proactive about monitoring their credit, paying down their credit card balances, and taking strict measures to avoid missed or late payments on any financial obligation.

Those best practices help improve FICO scores over time, and you’ll want a combination of those best practices plus a sufficient amount of time to allow those practices to improve your credit scores potentially.

If you are in “credit recovery” mode, it may take 12 months or more to get your credit scores to a more competitive place. 

If your credit was already good going into the home loan process, it might be a question of simply maintaining your best practices while putting at least 12 months between you and your last late or missed payment.

Are you a first-time home buyer? Consider reaching out to the FHA directly to request a referral to a local, HUD-approved housing counselor. Dial 1-800 CALL FHA.

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