With mortgage rates increasing, home prices on the upswing and a dearth of affordable properties, spring home buyers are going all in on the amount of money they are borrowing in hopes of winning the bidding wars that are breaking out in some segments of the country.
According to a report by CNBC, in order to get an edge and hopefully a new home, buyers are forced to stretch their budget to make it work. They are also putting less down as a down payment and turning to adjustable-rate loans that give them lower interest rates for a period of time before adjusting to the prevailing interest rate. Mortgage lenders are responding by relaxing strict lending standards put in place after the Great Recession and the real estate crash of 2008 and 2009.
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CNBC pointed to Fannie Mae as one example. Fixed mortgage loans backed by Fannie Mae with less than a 10% down payment increased to 14% in 2017, up from 12% the year earlier. Mortgage experts expect that percentage to increase even more in 2018.
Mortgage rates that have been rising since the start of the year are prompting some buyers to get aggressive in winning a bidding war. While rates are low from a historical perspective, they are moving up, which is causing some buyers to get off of the sidelines. After all, those with less financial means tend to pay more in interest on home loans and thus are more price sensitive. They are more likely to act sooner rather than later out of fears that rates could go even higher. On the flip side, the rising rates are precluding some people from entering the market altogether, as is evident in the latest data from the Mortgage Bankers Association (MBA).
For the week ending April 20, the MBA reported a 0.2% decline in mortgage applications compared with a week earlier. On an unadjusted basis, mortgage applications increased 1% compared with the week earlier. Meanwhile, the refinance share of mortgage applications decreased 0.3% from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. The unadjusted Purchase Index increased 1% compared with the week earlier and was 11% higher than the same week a year ago.