Existing market conditions and mortgage rates are important factors to decide on your new house purchase or refinancing an existing one.
Let us take you through the ins and outs of low mortgage rates and see if it is the right time for you to buy a house.
How are the Mortgage Rates Fairing Right Now?
Mortgage rates went to the historic low during the pandemic peak days. For the last couple of years, mortgage rates have fared lower.
Although mortgage rates have retreated a bit in the recent weeks, they are still at a lower point than we would have expected sans current economic conditions.
Here is a quick overview of the mortgage rates for the different programs at the moment:
Although mortgage rates started creeping up a bit in the last months of 2021, they have remained along with their year averages in the first month of 2022.
If the current mortgage rates are to go by, there wouldn’t be a better time to consider buying a house than now. However, low mortgage rates aren’t the only reason to buy a house right now. (Explored in detail below)
Where are the Mortgage Rates Headed?
Several factors affect interest rates to change. Inflation is the prime factor that affects interest rates along with the FED policies.
The inflation rates have soared already to the highest point for the past three decades. The resurgence of Coronavirus means inflation remains high throughout the year again.
The economic conditions despite the efforts and the availability of vaccines of Covid-19 are improving slowly.
All that means for mortgage rates is to see a rise by the year-end of 2022. A conservative estimate for the 30-year fixed mortgage rate is to reach 4% by the year-end of 2022.
Similarly, in the short term, the mortgage rates have risen slightly. However, the rise is insignificant and does not hamper your cause of buying a house right now.
Your Advantages in the Current Low Mortgage Rate Market
If mortgage rate trends continue the way they have started this year, your best chances of buying a house are right now. The delay would only inflate your total cost of buying a house.
Here are a few key factors to consider to your advantage right now.
Low-Mortgage Rates
As mentioned above, mortgage rates wouldn’t stay flat at this level for the years to come. We never know how the world will shape but it’s unlikely to see mortgage rates drop to another historic low any time soon again.
Lower rates mean your total cost of borrowing is low. However, you’ll need to consider a few other factors such as credit score, house prices, and income as well.
Availability of Finance
Since the housing market has seen a boom, lenders are willing to offer more. Although you’ll need good credit and income to avail of the chance.
When mortgage rates fall many indicators move in favor of the buyers. For instance, many of the mortgage types become feasible for buyers that would otherwise be difficult to apply for.
Improved Buying Power
The total cost of financing a house decreases due to a decline in the mortgage rates. All that means is that you need to make smaller monthly payments now.
In simple words, your buying power improves in these conditions. Lenders consider the buying power of applicants an important factor when appraising your mortgage applications.
Low Down-Payments
It is a myth that you need 20% down payment in order to buy a house. There are several other options for you that offer low down payment options as low as 3%.
Consider Refinancing
Another great advantage for you right now is to consider refinancing your existing mortgage.
If your mortgage plan allows you to refinance, it is the right time to make the move. You can create a cushion of around $200 on your monthly payments if you choose the right refinancing option.
So, there are several advantages of a low-mortgage rate environment. All you need is the right advice and create a plan that saves you money in the long run.
Your Disadvantages in the Current Low Mortgage Rate Market
Just to make sure you are well prepared, we let you know a few key challenges that come with the low-mortgage rate market.
Higher House Prices
For several reasons, house prices tend to rise when interest rates fall. It has proven true in the past and currently as well. Right now, the average house prices have increased.
In fact, an FHFA report suggests that American house prices witnessed an increase of around 17.5% for the year ending 2021 as compared to the previous year.
High-Demand and Low-Supply
But higher house prices do not dent the demand for more houses. In fact, the lack of house supply means the demand has grown substantially in the last two years. What does it mean for you? It means there is more competition among buyers. The sellers have more options, and they can ask for more than they would normally do.
Low-Income Level
We have all been through tough times recently. The income levels have decreased in the last two years or so due to Covid-19 hardships.
If you have sustained your income level, you don’t need to worry about the house prices right now. All you need is to plan well for your next house purchase and talk to a professional that can guide you through.
Strict Financing Approval Criteria
With deteriorating income levels, increased joblessness, and fewer savings, lenders have implied stricter financing approval criteria.
Your credit score, debt-to-income, and collateral requirements may be harder right now than you would expect otherwise.
Therefore, you should plan realistically about your next mortgage or refinancing application.
How to Successfully Buy a House in the Current Market?
By now, you should have an idea of what the mortgage market is going through.
Now is the time to consider a few key steps that can help you secure a house by taking full advantage of low mortgage rates.
Consider Your Financials
Apart from house prices and interest rates, you should consider your financials more than anything else.
Consider if you want to live in a house for longer. Plan well before you act.
Build Credit Score
As mentioned above, lenders will look for better credit scores right now. Not to mention other strict approval criteria. Therefore, it’s important to build credit, and that’s a continuous process.
All that means is that you need to talk to the right person for the right type of mortgage.
Save for the Down Payment
You can do with the minimum down payment and for different mortgages having as low as only 3% required. However, it is a wise idea to save for the down payment, especially if you want to save around 20% of the mortgage value.
Consider Your Debt
Your existing debt level will be an important determinant of your mortgage plan for you as well as for your lender.
If you have substantial loans already, your debt-to-income will worsen with the new mortgage. Therefore, consider your monthly loan payments and the remaining debt balance before applying for a new one.
Ready to Take the Right Step?
So, if you have made up your mind, take the right step to achieve your life goal of living in your dream house.
We’ll gladly assist you to make the right call!