Mortgage rates have surged to their highest level in over a year, raising concerns among potential homebuyers that their affordability window is shutting faster than expected. Even though house prices are still growing and winter is generally the slowest season for the real estate market, mortgage demand in the US has significantly increased.
High mortgage rates: What does it mean for homebuyers?
According to the Mortgage Bankers Association’s seasonally adjusted index, buy loan application volume increased 2% last week compared to the prior week. This corresponds to real estate agents’ anecdotal reports of higher-than-normal mortgage demand in early January.
Applications were still down 17% from the same week a year earlier, although part of it is attributable to the market’s significantly reduced supply. Last month, supply did not grow as it typically does in December.
“Mortgage rates jumped sharply across all loan types last week as the Federal Reserve signaled tighter policy ahead, pushing US Treasury yields higher,” said MBA economist Joel Kan. “The housing market got off to a solid start in 2022. Both conventional and government buy applications increased, with FHA applications growing by over 9% and VA applications increased by more than 5%.”
FHA and VA loans have minimal down payment requirements and often utilize first-time homebuyers.
Refinance applications were down 0.1 percent from the previous week and 50 percent lower than the same period a year earlier. Refinance activity has dropped to its lowest level in over a month. As high mortgage rates continue to rock the market, fewer and fewer borrowers will be able to take advantage of refinancing.
According to Mortgage News Daily, mortgage rates spiked on Monday but then fell somewhat on Tuesday.
“The main issue now is whether the worst is past for this unexpected rate hike. The answer is a resounding ‘maybe!'” Matthew Graham, chief executive officer of Mortgage News Daily, commented, “It may even be ‘probably.'” “Unfortunately, this does not rule out the possibility of higher rates; rather, it suggests that the pace may be slowing from here.”
Don’t Let Rising Interest Rate Stop You From Buying Your Dream Home.
Are you looking to buy your first house? If yes, you should consider these useful tips for first-time homebuyers.
Buying a home is a big decision. And it’s even bigger if you are buying your first home. There are several things to consider before you decide to purchase a property.
Here are some important points to remember when purchasing your first home.
1. Research
If you don’t know where to start, then the best thing to do is to research the market and what type of neighborhood is suitable for you.
You can also think about the type of location that’s right for you. Are you in need of a short commute, or would you be more comfortable living near schools and places of employment?
2. Choose Your Loan Type Wisely
When choosing your loan type, make sure it fits your situation.
You may need an FHA mortgage because of low down payment requirements, but this could mean paying higher interest rates if you have bad credit.
And, since most lenders require at least 3 months’ worth of income history when getting a loan, you will potentially miss out on cheaper deals that other qualified applicants get. So, make sure that you have good credit before applying for a mortgage to get the lowest rate possible.
You can also consider using a fixed-rate mortgage instead of an adjustable-rate mortgage (ARM), which can increase its monthly payments every year. A 30-year Fixed Rate Mortgage has a fixed APR over years until it matures and thus keeps its principal balance stable.
3. Look into Special Financing Programs
There are special financing programs available depending on your situation. For example, many banks offer special programs for first-timers such as no money down mortgages or VA loans with lower down payment requirements.
Additionally, there are government-backed mortgages like USDA Rural Development Loans and FHA loans which allow up to 100% financing for those who qualify. These two types of federal home loans have certain advantages, including flexible underwriting criteria, reduced documentation requirements, and generally better terms.
Should Homebuyers Act Now?
Homeowners should act now before mortgage rates start rising again. Interest rates may drop slightly, but the cost of buying a house will still increase. Waiting could make homeowners pay more than they expected.
According to Adam Smith, president of the Colorado Real Estate Finance Group in Greenwood Village, Colorado, homebuyers who are concerned about interest rates may be hurting themselves by not acting quickly enough to purchase a home. What is the reason for this? Interest rates on mortgages are unlikely to fall soon.
