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Though mortgage rates have been unbelievably low since the summer, borrowers took a break on applying around the election. (Perhaps the anticipation and stress of awaiting results caused would-be applicants to get understandably distracted.) But now, buyers are clamoring to purchase homes once again.
Applications for purchase mortgages rose 4% for the past week, according to the Mortgage Bankers Association's seasonally adjusted index. Meanwhile, application volume was 26% higher than it was a year ago.
Should you apply for a mortgage right now?
Low mortgage rates are clearly fueling a demand for homes, especially since housing prices are quite inflated in today's market. But should you jump on the bandwagon and try to buy a home yourself?
Well, it depends. Applying for a mortgage makes sense right now if you find a home you like and can afford and are also a good home loan candidate. But is that the case?
First, let's talk housing. It's not just that prices are higher than they've been in years. Inventory is also so limited that you may not actually find a home you want to purchase right now. Imagine spending at the top end of your price range for a property that needs a lot of repairs, or that's smaller than you want. Buying now could mean settling in a very big way, so if you don't find a home you love, or one with a price point that works for your budget, then you shouldn't let enticing mortgage rates drive you to move forward.
Next, let's talk mortgage approval. To qualify for the top mortgage rates that are driving so many people to buy homes, you'll need to meet a number of criteria:
- Have a strong credit score -- one in the mid-700s or above
- Have a low debt-to-income ratio
- Have a steady job
- Earn a wage that's high enough to cover the mortgage
- Have assets to show a lender, including funds for a down payment
If you don't meet these criteria, your mortgage application may be rejected. Or, you may get approved for a home loan, but at a rate that's not competitive. So even if you're seeing homes available in your target market at a price point that works for you, if you're not a great loan candidate -- say, because your credit score needs work -- it makes sense to wait to apply.
How long will mortgage rates stay low?
Without a crystal ball, it's impossible to predict how mortgage rates will trend. But due to the greater economic crisis at hand, it's fair to say that rates will likely stay low for quite some time. So if you're not a great mortgage candidate right now, work on making changes so a lender is more likely to offer you a top rate down the line. Boosting your credit and getting rid of some existing debt, for example, could really help you make your case.
Holding off on buying a home could also mean gaining access to better, more varied inventory in 2021. If your local housing market is really tight and there aren't many homes to choose from, waiting could help you snag a home that's more affordable and in better shape.
Finally, the fact that mortgage applications are spiking again following the election means that right now, there's lots of competition for limited homes. Sit tight, and you may find that buying a home is a much less stressful endeavor if you opt to do so next year.