Mortgage rates climbed steadily through most of 2022, to a high of 7.08% on Oct. 27 and Nov. 10. The Federal Reserve increased its benchmark interest rate seven times over the course of the year, and inflation was over 7% in November. This created an unfavorable situation for borrowers interested in purchasing a home.
Toward the end of the year, however, things seemed to take a turn. We saw five consecutive weeks of declining rates, which didn’t break until the week ending Dec. 29, when mortgage rates increased slightly to 6.42% from 6.27% the previous week. While some experts are optimistic about the opportunities available in 2023, many remain cautious. While some buyers hope to see rates around 3% once again, most predictions point toward a drop to around 5% toward the middle or end of 2023.
The National Association of Realtors expects median existing home prices to increase just 0.3% in 2023 while the price for new homes is expected to increase 1.3%. This is a marked change from the 9.6% increase for existing homes from 2021 to 2022 and the 18.2% hike from 2020 to 2021.
If you’re interested in buying a home in 2023, it’s vital that you understand your options and know how to shop smart. Though this year may not yield the lowest mortgage rates for the decade, it will likely offer better options than 2022. For individuals who are ready to get into a house, the right offer could make this the proper time to buy.
When it comes to mortgage shopping, you have three primary choices:
- Banks: Large banks have a lot of lending power, but they offer a largely impersonal experience.
- Credit unions: Credit unions are smaller financial establishments. They typically offer fewer fees and better, more personalized service than banks.
- Mortgage brokers: Independent mortgage brokers offer more flexibility than banks and credit unions, making them a desirable choice for shoppers who want lots of room to negotiate a custom deal suited to their needs.
How to Prepare for Mortgage Shopping
Before you start mortgage shopping, it’s best to take a careful look at your personal finances and credit score. It’s typically best to have a credit score that’s 620 or higher if you’re planning to buy a home. If your credit score falls below this number, you may still have some mortgage options available, such as USDA loans, but you’ll find your choices are more limited.
You can increase your credit score by paying down your outstanding credit and making on-time payments on all your credit cards and loans. Don’t open new lines of credit if you’re considering buying a house, as this will decrease the average age of your lines of credit. Lenders favor individuals who have maintained their credit for a longer period of time.
If your credit score is in shape, you should begin exploring the housing market in your area. For most loans, you’ll need to make a down payment on the home. In 2021, the average down payment was 7% for first-time homebuyers and 17% for repeat buyers. Consider your savings to determine the appropriate price range for your new home.
Comparing Mortgage Offers
When you’re confident that you have a good credit score and enough cash for a down payment, you can begin to solicit mortgage offers from different lenders. Once you start applying for mortgages, you have 30 days to compare your options before your credit score takes a hit for the inquiries associated with mortgage shopping. Use this month wisely to get written offers from several different mortgage lenders so you can find the best deal.
Around the end of 2022, the housing market was still tight. October had just a 3.3-month supply of homes, while a balanced market will have a five- to six-month supply. This means that you could face a bidding war over your ideal home and need to be prepared. Have a good offer in hand and know what you can afford so you can get the house you want.
If you’re ready to get the loan process started, contact our team at Rock Mortgage. We offer a variety of loan programs and provide the personal assistance you need to sort through your choices and understand the pros and cons of each. We can help you explore your options and find the right mortgage for your needs.
Guide to mortgage shopping in 2020 | Rock Mortgage — Houston, Texas