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First-time buyers should take action soon

March 16, 2017

Just ahead of the busy buying season that's about to start, mortgage affordability is in something of a strange place. While mortgage rates started to rise sharply over the final several weeks of last year, they retreated again more recently. But now experts believe that rates could soon start to grow, and combining that with ever-increasing home prices means that cost-conscious shoppers would be wise to get into the market as soon as possible.

"Experts now believe a sharper rate increase is in the offing."

Mortgage rates recently started to rise, albeit slightly, but experts now believe a sharper increase is in the offing because the Federal Reserve Board could raise basis interest rates before the end of the month, according to Bankrate. While raising basis rates - which mostly affect shorter-term lending - doesn't have a direct effect on mortgage costs, there is nonetheless a tendency for both types of rates to move at least somewhat in tandem. As a consequence, it's likely that mortgage rates will start to rise even more appreciably within the next several weeks.

Evaluating the situation
But when it comes to purchasing a home, some consumers may still be worried about actually going through the mortgage process because of how many would-be buyers may have faced some difficulties with tight restrictions in recent years, according to The Washington Post. In comparison with pre-recession norms, mortgages have been difficult to obtain. Consumers are still feeling that latter stress somewhat, but the good news is lenders finally appear to be loosening up their credit and financial standards to allow for more flexibility in purchase mortgage origination.

Lenders now believe they're right to remain cautious, given what happened when mortgage credit was far easier to obtain more than a decade ago, the report said. While financial institutions are more willing to take on slightly more risk these days, the kind of standards observed before the downturn aren't likely to return to the market ever again.

"You can create rules that eliminate risk entirely, but nobody's going to get a loan, either," David Stevens, president and chief executive of the Mortgage Bankers Association, told the newspaper.

"It's vital for people to understand exactly what they can afford."

Getting over the hump
With buying costs rising and trepidations about having an application rejected still very real for many shoppers, experts also note it's vital for people to understand exactly what they can afford before they start the process, according to Trulia. There are plenty of homeownership costs that must be considered above and beyond mortgage payments, like insurance and property taxes.These must be factored in to understand the true affordability of a property.

In general financial professionals stress that consumers should try to avoid paying no more than 28 percent of their monthly income on mortgage payments alone, the report said. Any more than that and it can put borrowers in precarious financial situations.

With all this in mind, it's important for consumers to do their homework but get into the market as soon as possible to ensure that they're able to find the home of their dreams at a price point that works for them.




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