skyrocketing housing prices, low availability, fierce competition, and ever-increasing mortgage interest rates are just some of the challenges first-time home buyers are facing.
The news today won't help. The Federal Reserve raised its benchmark interest rate for the fifth time this year in an effort to control inflation. Mortgage rates for 15- and 30-year fixed loans could be boosted by that.
Greg McBride, chief financial analyst at Bankrate.com, said in a statement that inflation is not easing as quickly as expected.
The 30-year fixed mortgage rate went up. The rate is more than double what it was a year ago.
According to the U.S. Bureau of Labor Statistics, housing is one of the biggest drivers of inflation. Housing costs are increasing at an accelerated rate even though price increases for things like gasoline and airfare are slowing.
Home buyers are at risk because of high mortgage rates and inflation. When rates rise, the same home will cost buyers more than it would have at a lower interest rate, forcing first-time buyers to rejigger their budgets.
Some are priced out completely and others lose their mortgage eligibility when they can no longer afford it.
A thirty-year mortgage rate of 3% on a $350,000 house with a 3.5% down payment has a monthly mortgage payment of $1,423, not including taxes and fees. According to Bankrate, a 6.5% mortgage rate increases your monthly payment to $2,134, which equates to an additional $255,960 over the life of the loan.
Higher rates are being faced by first-time homebuyers. The Mortgage Bankers Association's weekly survey shows that the 30-year fixed rate mortgage increased from 5.61% to 5.71%.
First-time buyers could benefit from buyers dropping out of the market.
Many potential buyers are wondering if they should try to buy now or wait for the rates to go down. Things may get better for buyers if they can afford rising rents.
Cooper believes that mortgage rates will go down in the next year or two. The mortgage environment will likely improve if a homebuyer is willing to wait.
Since first-time buyers don't have equity from a home sale to compete with repeat buyers, they can save up a larger down payment. If 20% of the purchase amount is saved, buyers can avoid taking out private mortgage insurance which could save them hundreds of dollars a month.
Tom Goyda, senior vice president, says that first-time buyers should consider applying for a mortgage pre-approval if they still want to purchase their dream home.
A pre-approval will give the buyer a better idea of their potential loan amount, monthly payment, and interest rate so they can start budgeting for their monthly expenses.
The most important thing a buyer can do is make sure they have enough money to pay their mortgage.
Are rising interest rates causing you to rethink your home purchase? If you want to be a part of a future story, please email reporterKaitlyn.
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