It’s becoming more and more difficult for prospective homeowners to afford homes. Homeowners find it harder to qualify for loans due to rising mortgage and interest rates. Coupled with the high prices of homes, homebuyers are caught between a rock and a hard place, and many opt out of the market. According to the Mortgage Bankers Association, mortgage applications are down more than 15% from last year, and refinancings are down more than 70%.
According to Mortgage News Daily, a 30-year fixed mortgage rate has increased from 3.29 percent to 5.65 percent. And according to Realtor.com, the median listing price reached a record high of $450,000 in June.
“As mortgage rates go up, it raises the cost of buying a home with a mortgage,” explained Danielle Hale, chief economist at Realtor.com.
“For many homebuyers, higher mortgage rates equal a higher monthly cost, especially for those taking out a large mortgage.”
Though the market has shifted, it is not entirely impossible to buy a home. More inventory is coming into the market, easing competition. Homebuyers, however, have to make some adjustments in their housing budget to make homeownership happen. And here’s how:
Reevaluating your overall budget
You’ll have to reign in your expenses, cutting back where you can. Understanding your financial situation and where your money is going will help you create a spending plan that will work best for you. Your overall financial status might benefit from even the little improvements you make. For example, you may want to dine out less, wash your car, find cheaper ways to pay, shop smarter, and use transport means when possible.
“The No. 1 thing for buyers to make sure [of] is that the monthly payment is comfortable and fits their budget,” Glenn Brunker, president of Ally Home, told Michelle Fox, CNBC.
Shop around for better interest rates
Your goal when purchasing should be to obtain credit at the lowest interest rate possible. Throughout your loan, doing this will cost you less money. It’s critical to consider the total of your mortgage—the greater the down payment, the cheaper the overall borrowing cost. Obtaining a more affordable interest rate can help you save money over time.
To get a sense of how your monthly payment would vary with future rate rises, work through several scenarios with your lender. Mortgage calculators from lenders or websites like Bankrate or NerdWallet let you experiment with different payment amounts.
Consider the terms of your mortgage.
The duration of time the applicant has to repay the mortgage term, often known as the loan term, has a substantial impact on how expensive a mortgage is. A larger down payment lowers your monthly payments by preventing you from borrowing as much on home purchases. That may work for someone selling a property with a lot of equity, but first-time buyers will likely struggle with this alternative.
Similarly, investing money in what are known as “mortgage points” ahead of time may lower your interest rate. According to Bankrate, each point costs 1% of the loan amount and often reduces the rate by 0.25 percent. But, again, this technique may or may not be suitable for your financial situation.
An important sector of the economy, the property market, appears to be slowing down due to rising mortgage and interest rates. For the third consecutive month, home sales in the United States decreased in April as rising mortgage rates increased the cost of borrowing for prospective purchasers at a time when housing prices were surging. So, aside from saving and shopping for the best interest rates, make sure you have a real estate agent who will work with your budget.
