Experts: Buyers Should Shop Around for a Mortgage as Rates Rise

Experts: Buyers Should Shop Around for a Mortgage as Rates Rise

Melissa Dittmann Tracey

 

Experts: Buyers Should Shop Around for a Mortgage as Rates Rise

As mortgage rates surge and remain volatile, it’s becoming increasingly necessary for home buyers to shop around for a loan to find savings. According to Freddie Mac, borrowers potentially could save an average of $1,500 over the life of a loan by gathering one additional rate quote from a lender. And borrowers could save even more by gathering five different quotes from lenders—up to $3,000, Freddie Mac research shows.

Every dollar may help as housing affordability reaches a critical threshold. The typical U.S. household will no longer be able to afford a median-priced home when mortgage rates reach 5.7%, Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, predicted last week.

This week, the 30-year fixed-rate mortgage pushed to an average of 5.89%. That means the typical household must now spend more than 25% of their income on mortgage payments, a level most financial experts consider to be cost-burdened, Evangelou notes.

“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” says Sam Khater, Freddie Mac’s chief economist. “Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 8:

  • 30-year fixed-rate mortgages: averaged 5.89%, with an average 0.7 point, rising from last week’s 5.66% average. Last year at this time, 30-year rates averaged 2.88%.
  • 15-year fixed-rate mortgages: averaged 5.16%, with an average 0.8 point, increasing from last week’s 4.98% average. A year ago, 15-year rates averaged 2.19%.
  • 5-year hybrid adjustable-rate mortgages: averaged 4.64%, with an average 0.4 point, increasing from last week’s 4.51% average. A year ago, 5-year ARMs averaged 2.42%.

Freddie Mac reports commitment rates with average points to better reflect the total upfront cost of obtaining the mortgage.

Source:magazine.realtor

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In two-thirds of major regional housing markets — 98 out of 148 — prices continue to drop, especially in more expensive locations.

We may see expensive markets fall further, which if that happens sooner than later, would make it an excellent time to buy into an expensive market. This wouldn’t have registered as a possibility even a few months back.

It’s difficult to predict if this will happen. And if so, whether falling prices become offset by the federal interest rate hikes practically certain to arrive in the coming months.

The only way to know for sure is to wait until the latest rate hike sets in.

Meanwhile, keep in mind that — as with any investment — it’s best time to buy is usually when prices are low.

‘Deals to be had:’ Homebuyers Should Ask For These Incentives While They Have The Upper Hand

The days of waiving contingencies such as appraisals and forgoing inspections are fading into the rearview mirror. Still, contract activity remains slightly competitive depending on your location.

At least 24% of buyers waived the inspection contingency in December 2022, according to the National Association of Realtors confidence survey, up from 16% a month prior and 19% one year ago. An additional 24% of buyers waived an appraisal contingency in December, up slightly from 16% in November and 21% a year ago.

Home inspection contingencies are particularly important because it can let you know if there’s a deal-breaking issue with the property before a purchase occurs. It can also help you negotiate repairs with the seller, which is becoming increasingly common in today’s market.

“If buyers have this short window to buy where they can get incentives to purchase, [they] would rather buy where they have an opportunity to really think about it, get an inspection, a financing contingency and not feel rushed,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance.