The lowdown on your buying power today
A few percentage points difference on your mortgage rate can go a long way. Over the past year, the rate for a 30-year fixed-rate mortgage has more than doubled. While home prices aren’t decreasing at a similar pace, the increase in what is costs to borrow money has had a major impact on what you can afford.
That difference in mortgage rates can equal $1,000s of difference in your monthly mortgage payments.
Putting the difference in perspective
Here are some numbers that might help you get a better understanding of how the movement of rates has changed the lending landscape.
Here’s what a monthly payment on a $400,000 mortgage would look like for a $500,000 home purchase ($100,000, 20% down payment) over the past year.
Date | Average 30-year fixed rate | Monthly Payment | Increase from original scenario |
October 14, 2021 | 3.05% | $2,217 | N/A |
June 9, 2022 | 5.23% | $2,723 | $506 |
Today (January 5, 2023) | 6.48% | $3,043 | $826 |
Sample scenario
Source: rate.com/mortgage-rates
Just to put this into context, this hypothetical buyer went from being able to afford a $500,000 home in the fall of 2021, to about a $350,000 home today. That’s assuming this homebuyer could afford a monthly budget a little less than $2,300 in both scenarios. Their homebuying power has gone way, way down in the last year and a half.
Fortunately, there are a few things you can do to raise your buying power.
Ways to raise buying power
It isn’t all about getting lucky with rates. There are other ways to help boost your buying power with ease and get you ready to buy a home. Here are a few for you:
4 WAYS TO BOOST YOUR HOMEBUYING POWER
- Down Payment Assistance
- Certain Loan Options
- Getting Pre-Approved
- Better Credit = Better Options
1. Down Payment Assistance
The idea of 20% down is a thing of the past. For most buyers, (especially first-time homebuyers) there are plenty of financial assistance programs that help you with a down payment, taxes, or refinancing your loan – helping your dollar go farther. And private mortgage insurance (PMI) allows many buyers to get a mortgage without putting 20% down. Talk to a mortgage professional to see what they recommend for your situation.
2. Certain Loan Options
There are more options to loans than choosing between a 15-year and 30-year mortgage. If you’re a veteran or have another select job, you could qualify for a loan with low-rate options. It’s important to look at all the details just as fixed rate vs. adjustable rate to determine which loan is right for you.
3. Getting Pre-Approved
Getting pre-approved helps with many uncertainties in the homebuying world. Being able to show a seller that you’re serious gives them confidence in your offer. It also shows you your budget for what you can and can’t buy giving you a clear picture of what is possible.
4. Better Credit = Better Options
Finally, some of the most important factors that influence your buying power are your financial history and future. When you get a mortgage, your credit will be pulled, showing loan officers you credit score. This, along with your debt-to-income ratio and future assets or expenses help your mortgage company determine your rate. Based off of if they like what they see, you could be paying less each month.
Silver linings in the current market
With mortgage rates higher than they’ve been in year, as well as home prices, you may think that now is not the time to buy. But there is still good value to be found out there, and with fewer buyers, you may find that there is less competition. This will help you when negotiating the price.
Sellers may also be eager to offer concessions, even offer to help you buy down the rate of your mortgage for the first few years of the term. However, to get the best detailed answer and finding the best solution for your specific homebuying needs we’d recommend talking to a loan expert.