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It’s getting harder and harder to afford a house.
Prices are up nearly 20% year over year, and mortgage rates are skyrocketing.
The rate for a 30-year fixed loan is now 5.57%, according to Daily Mortgage News, compared to 3.29% at the beginning of the year.
At the same time, consumer prices for everything from gasoline to food are also accelerating, costing Americans hundreds of dollars more in monthly expenses. In an effort to contain inflation, the Federal Reserve raised interest rates on Wednesday by half a point.
Mortgage rates don’t respond directly to Fed rate hikes in short-term rates, since the former are based on longer-term rates, such as the 10-year Treasury yield, explained Greg McBride, chief financial analyst. from Bankrate.com.
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However, he does foresee the possibility of some pain ahead for homebuyers.
“Until we see sustained evidence that inflationary pressures moderate, the risk is much higher toward higher mortgage rates,” McBride said.
“But when we see inflationary pressures ease, mortgage rates could change course quickly, especially if the economy is also slowing.”
Meanwhile, rents are also going up.
“If you’re not sure whether you want to rent or buy right now…it’s best to make your decision based on your personal situation and personal needs,” said Lexie Holbert, Realtor.com housing and lifestyle expert.
Follow these steps before making the decision to buy or rent a home.
Do a financial check
Ask yourself if you are financially prepared to own a home. That includes having enough emergency savings in case something happens in your first year of homeownership, Holbert said. He must also have enough monthly income to pay the mortgage payment, taxes, and insurance, as well as additional monthly expenses, such as utilities.
Also check your credit report, as your credit score has a direct relationship to the mortgage you’ll get and the interest rate you can afford. If you see any errors, have them corrected before applying for a loan.
If you can’t afford the monthly payments, keep renting and keep saving money if homeownership is your primary goal, Holbert said. If high income keeps you from saving, consider downsizing or making other big lifestyle changes so you can start saving more money.
“You’ll read that if you cut back on your $4 latte habit, it could really help you save for a house,” he said.
“While it’s really good to save, where you’ll really find that big down payment is going to be in those big expense categories, like your home or your car.”
Evaluate your time
Think about where you are in your life. Are you looking to settle down somewhere for a while or will you be moving in a couple of years?
The general rule of thumb is that it takes five to seven years on a home to recoup the purchase costs, Holbert said. That includes closing costs, which add 2% to 5% to the purchase price.
“If your household needs are going to be fairly constant and fairly stable over the next few years, now may be a very good time to buy,” he said.
“If they’re changing, you might want to consider renting so you have the flexibility to move.”
Set a budget
Finding out how much you can afford to buy a home is especially important now that home prices are rising, Bankrate’s McBride said.
This way, you have limits set around your purchases from home.
“The position you don’t want to be in is falling in love with a house and having your offer accepted and then having to figure out how to pay for it,” he said.
Check out homes in your price range on sites like Realtor.com or Zillow to see if they fit your needs.
Reference-www.cnbc.com