Can you afford to buy a house? As Americans watch home prices rise while simultaneously experiencing little to no increase in their paychecks recently, it's a question that's become more difficult to answer — especially because the data differs for everyone.
However, there is one factor that's consistent for everyone regardless of location: mortgage rates, and they have major implications on whether you can afford to buy. Regardless of where you live in the country, there is very little difference offered for the conventional 30–year fixed–rate mortgage, which is by far the most popular mortgage product on the market for the majority of homebuyers.
This wasn't always the case, but it is a big benefit companies like Freddie Mac and the secondary mortgage market make possible today. We help keep long–term fixed–rate mortgages lower, and help keep them uniform across the country.
The 30–year fixed mortgage rate averaged 4.05% in April, the lowest average of any month so far this year, and very close to today's rate. If you take out a $200,000 mortgage at this rate to buy that home you've had your eye on, you'll pay $768 (assuming 20% down payment) in principal and interest payments each month.
Since 1971, when Freddie Mac began tracking mortgage rates, they have ranged from a high of 18.63% in October of 1981 to a low of 3.31% in November of 2012. Looking at the all–time highs and lows compared to more recent history offers a good perspective on how your payments on the same $200,000 mortgage would change as mortgage rates change.
Over the past few years, we've enjoyed a long run of historically low mortgage rates. While no one expects them to change dramatically overnight, they are expected to head up. Most experts agree that mortgage rates will drift up in the coming months to end the year just below 4.5%.
Buying a home is a big investment — what you can afford depends on many factors, but especially the cost of the house, your income and your mortgage rate.
For more information and tools on buying a home and homeownership, visit Ready to Buy.