Home buyers are struggling to buy homes today for good reason. Home prices have skyrocketed nationwide, and now it has become more difficult to find an affordable place to buy on a budget. Even buyers with larger budgets have a hard time finding properties in today’s market.
Low mortgage rates have been the only saving grace in today’s housing market. Although rates have increased recently, they are still at very competitive levels, historically speaking. These low mortgage rates are helping to offset rising house prices.
But mortgage giant Fannie Mae has bad news for potential buyers. In his most recent forecast, he expects house prices to continue rising in 2022. To make matters worse, he also expects mortgage rates to rise.
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Will mortgage rates make it harder to buy a home next year?
The average 30-year fixed-rate mortgage rose to 3.05% for the week ending Oct. 14, according to tracking data from Fannie Mae. Meanwhile, he expects the 30-year average mortgage loan to hit 3.3% next year, up from the 3.1% forecast last month.
Obviously, this isn’t the best news for home buyers. The more mortgage rates go up, the less affordable homes will be, especially if prices don’t start to fall.
At the same time, it is important to put an average mortgage rate of 3.3% into perspective. On a historical basis, this is still an extremely low rate. It is true that there was a point earlier this year when the 30-year average loan was less than 3%. But 3.3% is not a terrible rate. In fact, that translates to only $ 438 in principal and interest per $ 100,000 borrowed in the form of a mortgage.
Granted, most borrowers need a higher mortgage than that. But for a mortgage of $ 300,000, that’s a monthly principal and interest payment of $ 1,314.
Of course, that’s not the only expense homeowners will need to consider. In addition to their mortgage payments, homeowners must cover the cost of property taxes, home insurance, maintenance, and in some cases HOA fees and private mortgage insurance. But all in all, if Fannie Mae’s projections come true, mortgages should still be relatively affordable.
Whether homes are affordable in your area is another story. As of this summer, prices were already up 19.7% compared to the previous year. And many buyers can’t afford to stretch their budgets any further.
How to prepare to buy a house in 2022
If your goal is to buy a home in the coming year, there are two important things to work on. First, aim to increase your credit score. The higher your score, the more competitive the mortgage rate for which you are likely to qualify.
Then pocket extra money for a down payment on a house. This will give you more flexibility if house prices continue to rise.
Finally, prepare for a tough market. Mentally preparing yourself could make the home buying process easier. This is especially true if you are a first-time buyer and are going through a fairly difficult time.