Here’s why buying a home is getting harder and more expensive


The additional costs of a home purchase are going up, along with home prices

There is very little good news lately for homebuyers. Prices are going up again, and coupled with 7% mortgage rates, monthly mortgage payments are as high as they have ever been.

The Consumer Financial Protection Bureau (CFPB), in its annual report on mortgage trends, also points to other barriers to homeownership. In 2022, interest rates, fees, discount points, and other costs increased.

Overall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income. 

"The higher interest rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” said CFPB Director Rohit Chopra. “These trends are likely to continue given further increases in interest rates in 2023.”

When considering a home purchase many buyers often overlook additional costs that don’t appear in the purchase price. Last year these closing costs rose 22% from 2021 to $5,954. 

A higher percentage of borrowers – just over half – paid discount points in 2022 than in any other year since data collection in this area began, including 2021. The median borrower paid $2,370 for discount points in 2022, adding to the amount of cash required to close.

The average mortgage payment is up 46%

The report also shows the average monthly mortgage payments increased by more than 46%, largely driven by the rise in mortgage interest rates. The average monthly principal and interest payment for borrowers taking out a conventional conforming 30-year fixed-rate mortgage rose from $1,400 in December 2021 to $2,045 in December 2022 – a 46.1% increase. That doesn’t include taxes and insurance.

The median interest rate for a 30-year fixed-rate mortgage at the end of 2022 was 6.5%. It’s nearly a point higher now.

In spite of the highest mortgage rates in two decades, homeowners are still refinancing their mortgages, albeit at a much slower pace. However, the report shows that when homeowners did refinance, they did it to take equity out of their homes.

As home prices rise, many real estate experts worry that more buyers will put less than 20% down, making it necessary to take out private mortgage insurance (PMI). Steve Nicastro, a Content Team Lead at Clever Real Estate, says that just makes the monthly payment less affordable.

“PMI can cost up to 2% of your loan amount every year, Nicastro recently told ConsumerAffairs. “At a 1% [down payment] rate, this would add $330 per month to your payment.”

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