It’s no secret that this is a tough market for potential buyers.
In October, U.S. buyers needed to earn $107,281 to pay the median monthly mortgage payment of $2,682 for a ‘typical home’, Redfin reported this week.
That’s 45.6% more than the annual income of $73,668 needed to cover the median mortgage payment 12 months ago, according to the report.
The main reason is rising mortgage interest rates, said Melissa Cohn, regional vice president of William Raveis Mortgage. “At the end of the day, mortgage rates have more than doubled since the start of the year,” she said.
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Despite the sharp drop reported this weekthe average interest rate on a 30-year fixed-rate mortgage of $647,200 or less hovered below 7%, compared to below 3.50% at the start of January.
And while home values have softened in some markets, the average selling price is higher than a year ago.
“Home prices have risen dramatically, mortgage rates have more than doubled and that’s only crushing affordability,” said Keith Gumbinger, vice president of the mortgage site. SAS.
Meanwhile, the rising cost of living continues to eat away at American budgets, with annual inflation at 7.7% in October.
How to make your mortgage more affordable
Although current conditions may seem grim for buyers, experts say there are several ways to lower your monthly mortgage payment.
For example, a higher deposit means a smaller mortgage and lower monthly payments, Gumbinger explained. “More room in that kind of environment can definitely play a role in keeping your mortgage costs under control,” he said.
another option is an adjustable rate mortgage, or ARM, which offers a lower initial interest rate than a fixed rate mortgage. The rate then adjusts at predetermined intervals to the market rate at that time.
An MRA may also be worth considering, as long as you understand the riskssays Cohn.
If you plan to stay in the house for several years, there’s a risk you won’t be able to refinance a fixed-rate mortgage before the ARM adjusts, she said. And in a rising rate environment, it is likely to adjust upwards.
Your eligibility for future refinancing may change if your income declines or the value of your home drops. “It’s a bigger risk, especially for a first-time home buyer,” Cohn said.
Of course, home values and demand vary by location, which affects affordability, Gumbinger said. “Being patient and opportunistic is a good strategy for market conditions like this,” he said.