Will mortgage rates really go lower?
Despite the ongoing recession, 2020 has been a banner year for mortgages, with 15- and 30-year fixed loans hitting record lows. But just when you thought things couldn’t get better on the mortgage front, they just might.
Fannie Mae recently projected that the average 30-year fixed mortgage rate will fall to 2.7% next year, compared to 3.1% this year. A month ago, Fannie Mae projected that the 30-year mortgage would average 2.8% in 2021. That downward trend in expected average is a clear positive for borrowers — and one that’s still subject to change in their favor.
Should you buy a home in 2021?
While mortgage rates are phenomenal today, those deals are being offset by inflated home prices — a result of limited housing inventory. Since there are so few homes on the market, sellers can charge what they want, and buyers are paying a lot more than what they normally would. Because of that, now actually isn’t such a great time to purchase, despite such low mortgage rates.
Things could change for the better in 2021, though. If things improve on the COVID-19 front, homeowners may be more eager to list their homes, and a more robust selection could mean lower home prices.
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9 in 10 Americans can qualify to refinance their mortgage. With mortgage rates plummeting to multi-decade lows, there’s no better time to cut your monthly mortgage payment.
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How to prepare to buy a home
If you’re thinking that 2021 may be the year you take the plunge into homeownership, there are a few important steps you should take.
1. Boost your credit score
The higher that number, the more likely you are to get approved for a mortgage, and at a favorable rate. You can improve your credit in a number of ways, from paying all incoming bills on time to knocking out a chunk of existing credit card debt. Checking for and correcting errors on your credit report could also help your score improve. And right now, you can access your credit report weekly for free.
2. Save more for a down payment
Though it’s possible to get a mortgage without putting down a full 20% on your home, a 20% down payment could help you avoid private mortgage insurance, a costly premium that gets tacked onto your home loan costs. Also, some lenders are getting stricter about down payments, so the more money you come up with, the greater your chance of mortgage approval.
3. Do your research
It’s hard to say exactly when mortgage rates will hit a low in 2021 and when the housing market will open back up, but in the coming months, do some research to narrow your target neighborhood. That will help you jump on buying opportunities if they arise. When researching areas, pay attention to factors like amenities, school districts, proximity to jobs, parks, and other features that may be important to you.
Of course, just because Fannie Mae predicts that mortgage rates will drop even further in 2021 doesn’t mean that will actually happen. If you’re in a position to buy right now and you’ve found a home you like and can afford, you shouldn’t necessarily sit back and wait until next year, with mortgage rates what they are today. But if you haven’t found your dream home, or an affordable version of it, then it could pay to gear up for what next year has in store.