There was a drop in mortgage applications last week, but that could soon change.
While today Mortgage rates are still quite attractive historically, it’s hard to ignore the fact that they have been rising steadily since mid-February. Mortgage applications were down 1.3% in the week leading up to March 5, and rising interest rates were likely a big contributor, according to the Mortgage Bankers Association.
Still, there is no reason to believe that mortgage applications will continue to decline from week to week. In fact, the opposite could happen once the prime listing season gets underway.
Spring could lead to an increase in inventories
A major challenge for home buyers over the past six months has been the historically low level of home available in the market. Part of this is due to the health concerns and economic uncertainty caused by the Coronavirus pandemic. But real estate advertisements are also rather sluggish in the winter months, which makes buying more difficult.
For one thing, it is more difficult to demonstrate the attractiveness of the houses when there is snow and mud everywhere. Even shorter days make evening screenings a challenge – real estate agents can’t highlight the natural light of a home when it gets dark at 5 p.m.
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But once spring comes we could see a significant spike in listings as more sellers bring their homes to market. This, in turn, could lead to an increase in mortgage applications.
Should you be planning on buying a home this spring?
If you’ve been looking for a home in today’s cramped market, you might find yourself luckier sometime in April and May. Similarly, spring may be a good time to take a break in the apartment hunt to avoid the frustration of searching lean plucks. Even if mortgage rates keep rising over the next few weeks, there’s a good chance they’ll still be competitive in a month or two. And when you have more inventory to choose from, getting a quote on an accepted home may become a lot easier.
Obviously, if you are looking to buy a home this spring, you need to make sure that you are a strong candidate for a mortgage. To do this, you want to:
- A good Credit score:: A mid-700s or higher score is ideal and puts you in a great position to get a low interest rate on a mortgage.
- A low Debt-Income Ratio:: The lower this number, the more confident a lender has in your ability to repay your home loan.
- ON deposit for your home: An ideal down payment is 20% on a traditional loan, although some lenders may accept less. (Other credit products allow you to pay a lower down payment, such as FHA loan.)
- A steady job: If you are thinking of switching careers, you may want to wait to get a mortgage off.
There’s a good chance the housing stock will look very different in warmer weather. Not only is spring a popular time to sell a house historically, but as more and more people are getting the COVID-19 vaccination, the pandemic situation could also improve. Once that happens, sellers may be more motivated to list their properties (or welcome potential buyers to their homes to look around). If you want to buy, do what you can to make yourself attractive Mortgage lender as possible. That way, if rates keep rising, you could still get a very good deal on your home loan.