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How to afford a mortgage when interest rates and house prices are rising

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It’s no secret that it’s a tough market for potential home buyers.

In October, U.S. buyers needed to earn $107,281 to afford the average monthly mortgage payment of $2,682 for a “typical home,” Redfin reported this week.

That’s 45.6% higher than the $73,668 annual income needed to cover the average mortgage payment 12 months ago, the report said.

The main reason is rising mortgage interest rates, said Melissa Cohn, regional vice president of William Raveis Mortgage. “The bottom line is that mortgage rates have more than doubled since the beginning of the year,” she said.

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Despite there was a sharp drop this weekthe average interest rate on a 30-year fixed-rate mortgage of $647,200 or less hovered below 7%, down from less than 3.50% in early January.

And so far home values ​​softened in some markets, the average sales price increased compared to a year ago.

“Home prices have gone up significantly, mortgage rates have more than doubled, and it’s just amazingly affordable,” said Keith Gumbinger, vice president of the mortgage site. HSH.

Meanwhile, the higher cost of living continues to squeeze Americans’ budgets annual inflation 7.7% in October.

How to make your mortgage more affordable

While current conditions may seem bleak for buyers, experts say there are several ways to lower your monthly mortgage payment.

For example, a higher down payment means a smaller mortgage and lower monthly payments, Gumbinger explained. “A lower rate in this environment can certainly play a role in keeping your mortgage cost under control,” he said.

Another option it is an adjustable rate mortgage, or ARM, which offers a lower initial interest rate compared to a fixed rate mortgage. Later, the rate is adjusted at predetermined intervals to the market rate at that time.

ARM may also be worth considering while you understand the risks– said Cohn.

If you plan to stay in your home for several years, there’s a risk you won’t be able to refinance your fixed-rate mortgage before the ARM adjusts, she said. And in a growing environment, it will likely adjust higher.

Your eligibility for a future refinance may change if your income drops or the value of your home falls. “It’s a bigger risk, especially for first-time homebuyers,” Cohn said.

Of course, the cost and demand for housing varies by location, which affects affordability, Gumbinger said. “Being patient and opportunistic is a good strategy for these market conditions,” he said.

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