Mortgage rates have been on the rise, causing a significant increase in the average monthly payment for a 30-year fixed-rate loan. According to a new report from the Consumer Financial Protection Bureau (CFPB), the average payment for a home purchase loan rose by more than $600 in one year, from $1,400 per month to $2,045. Additionally, the median total of costs and fees for these mortgages increased almost 22% to nearly $6,000 in the same period.
The surge in mortgage rates is expected to continue in 2023, with the average monthly payment likely to grow even further. This can make it challenging for many prospective homebuyers to afford a house in the current market.
The CFPB report also revealed that lenders denied mortgage applicants due to insufficient income at a higher rate in 2022 compared to any other time since the data was first reported in 2018. For those who don’t have enough cash to purchase a home outright or receive a wage increase to meet the substantial jump in mortgage costs, it may be wise to wait.
Freddie Mac’s chief economist Sam Khater suggests that both buyers and sellers are holding out for better circumstances amid the current market conditions. Freddie Mac predicts that mortgage rates will stay above 6% throughout 2023, while home prices are projected to increase at a slower rate than the previous year.
If you decide to wait on purchasing a home, there are several things you can do to prepare for future homeownership. Consider saving for a larger down payment, as this will reduce the principal you borrow and potentially lower your monthly mortgage payments. Improving your credit score is also beneficial, as a higher score can result in a lower interest rate on your mortgage.
Additionally, it may be worth researching different housing markets beyond your local area. The limited options in the current housing market mean you may need to explore previously overheated markets where home prices are now cooling. This could provide more affordable options.
Government programs can also assist with mortgage affordability. Federal mortgage programs often help low-income and first-time homebuyers, while many local governments offer mortgage programs specific to their areas. These programs may provide financial assistance, grants, lower interest rates, or reduced closing costs.
When it comes to securing a mortgage, it’s essential to shop around and obtain multiple quotes from different lenders. Having multiple options will give you more leverage when negotiating with the lender of your choosing. Discuss with your lender various ways to lower your monthly mortgage payments, such as having the seller cover closing costs or offering to help pay closing costs in exchange for a reduced sales price.
While the current housing market presents challenges for potential homebuyers, taking the time to prepare and explore different options can help make homeownership more attainable. By saving for a larger down payment, improving credit scores, and considering government programs and negotiations with lenders, individuals can increase their chances of affording a home in the future.