(NewsNation) — After an interest rate drop, mortgage rates are falling. But what does that mean for potential homebuyers, and how much money do you need to have for a new home?
Mortgage rates
Following a recent interest rate cut, mortgage rates have dropped. As of Sept. 19, the rate for a fixed-rate mortgage was coming in at 6.09%. That’s 110 basis points down from a year ago, and there’s a chance rates could drop even more.
“Mortgage rates continued declining towards the six percent mark, reviving purchase and refinance demand for many consumers,” said Freddie Mac Chief Economist Sam Khater. “While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but we expect rates to fall further, sparking more housing activity.”
However, while lower mortgage rates may lure potential buyers to the market, it may take time for sellers to be motivated to put their homes on the market.
Home prices
The bad news is home prices have gone up and are still rising. Lower mortgage rates could actually make that issue worse if more sellers are competing for homes and driving up prices.
The upside is that those prices rose more slowly than in previous months. The Federal Housing Finance Agency says there is a chance prices could flatten out.
“For the third consecutive month, U.S. house prices showed little movement,” said Dr. Anju Vajja with the FHFA. “Gradually declining mortgage rates and relatively flat house prices may improve housing affordability.”
The median home price in the U.S. is $433,101. That means home buyers need to make $115,454 a year to afford a house, which is above the typical household income of $83,853. High rents also make housing more affordable, as renters paying more than the recommended 30% of their income per month may have trouble saving for a down payment and closing costs.
Up-front costs
Of course, mortgage rates and home prices aren’t the only things buyers need to consider. Fees and other closing costs mean buyers need to have more cash in hand.
On a $400,000 home, closing costs could range from $8,000 to $20,000. Adding on a down payment of 5%, buyers would need to have $28,000 to $40,000 on hand at the time of purchase.
