With a fresh year beginning, now is the perfect time to assess all the goals you hope to accomplish in 2018. For many, included in that list of aspirations is to finally become a homeowner. Markets may be tight on available homes, but you feel for the first time you have the right financial stability to take on this major investment.
The only question is: Will you be able to get a mortgage to finance your dream purchase?
You likely won't have to worry about getting approved by a lender. NerdWallet reported in early 2017 that the average approval rate of mortgage application is 88.2 percent nationwide, based on 2015 data. The more important concern is being approved for the price you want to purchase at, with an interest rate you can afford to take on. Not to mention, you want a lender you're comfortable working with for the next 30 years.
Searching for a home and finding the neighborhood you want to live in is fun, but the mortgage application process remains a mystery for many. Still, it's nearly impossible to make an offer on a home that will be accepted without preapproval from a lender. It's imperative to start off on the right foot by knowing what's ahead and how you can be prepared as you begin shopping around for mortgages.
Here's what you can expect from the mortgage industry in 2018.
Mortgage Interest Rates
While mortgage interest rates rose in 2017, hitting a national average of 4.44 percent in March, they fluctuated downward and closed the year at 4.15 percent, according to a weekly survey of lenders by Bankrate.com.
Greg McBride, chief financial analyst for Bankrate.com, says he expects the average interest rate for the 30-year fixed-rate mortgage to rise in 2018, ending the year around 4.5 percent. "But that doesn't come in a straight line -- I think there's going to be plenty of volatility up and down," he says, noting he expects to see rates at some point reach close to 5 percent and others dip below 4 percent.
Other forecasts vary, though interest rates for 30-year mortgages are largely expected to remain between 4.5 and 5 percent by the end of 2018. Real estate information company realtor.com's 2018 housing forecast places mortgage rates averaging about 4.6 percent throughout the year and reaching 5 percent by the close of the year.
Even with the potential for more growth in the near future, mortgage interest rates are still low compared to historical rates. Rates for a 30-year fixed-rate mortgage averaged 6.34 percent in 2007 -- the year the housing bubble burst -- according to finance information company ValuePenguin. Still, that's nothing compared to the historic peak for mortgage rates in 1981, when the 30-year mortgage rate averaged at 16.64 percent, but managed to hit 18.63 percent at one point during the year, per ValuePenguin data.
As with any increase in interest rates, uptick in home prices or change to the economy, a continued growth of average mortgage rates may squeeze small numbers of consumers out of being able to purchase a home in 2018.
But the expectation for slightly higher interest rates shouldn't deter you from checking out the mortgage programs available to you. While mortgages rates have increased in the past couple years, McBride notes the low rates we got used to seeing were a result of bad financial times across the U.S.
"When mortgage rates were at record lows, the housing market was a disaster. Nobody wanted to buy a house," he says. "Because when the economy stinks nobody wants to buy a house, and when the economy stinks [mortgage] rates are really, really low."
Programs and Lenders
The average interest rate may change over time, but the lender you choose and the mortgage programs you qualify for also have an impact on your individual rate and the amount you'll be expected to pay each month.
Low down payment options are growing in popularity, offering many first-time homebuyers an alternative when they don't have enough cash on hand but can otherwise afford the monthly payments for a home.
With good credit, a reasonable budget for the home and solid flow of income, you should no longer be delayed by having to save up 20 percent on a house. Down payments between 3 and 10 percent are now available to more and more first-time buyers as lenders offer a variety of programs, including the purchase of mortgage insurance and Veterans Affairs loans that require veterans to put nothing down.
As you assess your options with various lenders, consider the customer experience you'll have as well. While the mortgage industry's reputation has long been viewed as antiquated, many lenders are not only offering online experiences, but also automated application processes, immediate approval notification and easy payment options.
Rocket Mortgage by Quicken Loans came online in 2015 with automated options for borrowers. Regis Hadiaris, product lead for Rocket Mortgage, says the company's focus has been on bringing the mortgage experience in line with consumer expectations for everything in the modern world, with easy mobile access and a quick process to help make housing decisions.
"It's all about making mortgages simple ... and changing perceptions so people can use these tools, so they can make a better financial decision," Hadiaris says.
Getting a mortgage online and using automated processes for quick turnaround on an application are becoming more common throughout the industry. LoanDepot is an online lender specializing in automation and cybersecurity, and Roostify is a platform lenders use to automate their systems, giving borrowers the online and mobile experiences they wouldn't have had otherwise.
For first-time homebuyers in particular, it appears the automated processes feel similar to other online experiences like banking. Hadiaris says 82 percent of Rocket Mortgage users are first-time buyers (as of this writing). "I think they just naturally gravitate to it," he says.
Confidently Moving Forward
When it comes to being approved for a mortgage and successfully buying a house in 2018, there's no need to be concerned about how the rest of the mortgage industry is changing or who else is looking to buy, but simply ensuring you are making a smart purchase for yourself.
"Figure out how much house you can afford," McBride says. "That sets boundaries around your home shopping. Get approved for a mortgage, and go for the safety of a 30-year fixed-rate mortgage. You follow those steps and it'll reduce your chances of getting in over your head."
At times, particularly in competitive housing markets, mortgage applications are declined in the final stages of the purchase process because the property doesn't appraise for the negotiated price.
While it may lead to some panicked negotiating or even having to restart your home search, McBride stresses that kind of hiccup is ultimately for the best: "That's not a bad thing -- that kept you from overpaying."
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