A new year is upon us, and for many couples across the country, 2022 will be the year they buy a new house. If buying a new home was a New Year’s resolution, now’s the perfect time to learn about mortgage rates. Your mortgage rate is the interest rate assigned to your home loan. In other words, it’s how much money you’ll spend on your home per month. In this article, we’ll go over the top four things you have to know about mortgage rates, including what you should expect from the housing market in 2022.
Housing Market in 2022
Before we dive into what you need to know about mortgage rates, we should first take a look at what the housing market is expected to look like in 2022. One prediction is that there will be more buyers than there are homes for sale. This is known as a seller’s market, which gives sellers the advantage of being able to increase their asking price. This means that if there’s a house you fall in love with, chances are you’re going to be competing with a lot of other interested buyers.
Second, mortgage rates are expected to rise in 2022. At the end of 2021, mortgage rates were around 3%, which was a historic low. However, don’t panic at this expected increase. Experts argue that mortgage rates will average out anywhere between 3.3% and 3.5% by the end of the year, although they could go as high as 4% depending on the lender.
Now that you know what the housing market is expected to look like in 2022, here are four things you should know about mortgage rates that can give you an advantage:
1. Mortgage Rates Vary Depending on the Lender
While the information listed above is a little intimidating, it’s important to remember that mortgage rates vary depending on the lender. Buyers aren’t limited to one source when it comes to getting a mortgage. Banks, credit unions, and individual mortgage lenders can all assist you with your home-buying needs.
Since each lender will offer you a different rate, you need to shop around to make sure you’re getting the best one based on the current real estate market, your credit score, and your budget. However, don’t forget that when you’re shopping around, you have to also consider the closing costs. Closing costs are fees you pay your lender that are associated with your home loan. When shopping around for a mortgage, ask the lender about both expenses and interest rates.
2. Mortgage Rates Are Constantly Changing
Another important fact about mortgage rates is that they are always in a state of flux. What something costs in January might not be what it costs in September. In some cases, what it costs today might not even be what it costs tomorrow. So knowing this, how can you stay competitive in the space?
First and foremost, understand that these rates are going to fluctuate based on the market. Mortgage rates are dependent on rising inflation, the bond market, federal reserve monetary policy, and housing conditions such as whether it’s a buyer’s or seller’s market. These rates also depend on the strength of the current economy and employment rates.
3. Your Credit Score and Down Payment Affect Your Mortgage Rate
Typically speaking, the higher your credit score is and the more money you put on your down payment, the lower your mortgage rate will be. When it comes to credit scores, having a score of 620 is usually acceptable; however, it’s not impossible to get a mortgage rate with a score that’s lower than this. Your credit score is how institutions assess your risk. The lower it is, the higher your interest rate will be so your lender can make sure they’ll get repaid. To get the absolute lowest mortgage rate, experts agree that you should have a credit score of 760 or above as well as a low debt-to-income ratio.
Likewise, the more you pay for your down payment, the lower your monthly payments will be because your interest rate is dependent on the home’s value. In most cases, putting down at least 20% as a down payment can help you get approved for a lower mortgage rate.
4. There Are Multiple Types of Loans That Determine Your Mortgage Rate
While your mortgage rate will depend on all the factors listed above, the biggest determination is the type of home loan you get. All home loans have different eligibility requirements. For example, active-duty military, veterans, and spouses of veterans all qualify for a VA loan. This type of loan is backed by the U.S. Department of Veterans Affairs and usually does not require a down payment. Nor do they set interest rates. Instead, your mortgage lender will determine your rate based on your personal financial situation.
This is in contrast to a conventional loan, which is not backed by the government and can either be conforming or non-conforming. Eligibility for conforming conventional loans is set forth by the Federal Housing Finance Agency (FHFA). Conforming loans determine your mortgage rate based on your debt and credit history, while non-conforming conventional loans can be available to homebuyers who either have outstanding credit or are building back after filing for bankruptcy.
Are You Ready to Buy a House This Year? The Team at M&M Mortgage Can Help
If you’re ready to buy a house in 2022, you need a trusted mortgage lender who can help you understand what works best for you and your budget. The team at M&M Mortgage has years of experience working with new and seasoned buyers alike. When you’re ready to find your forever home, we’re ready to help. Call us today at 651-639-9800 or learn more about loan rates by visiting our website.