Mortgage rates fell a little this week, as mixed economic data makes the Federal Reserve’s decision-making a little trickier.
The average 30-year mortgage rate fell five basis points to 6.28% APR. A basis point is one one-hundredth of a percentage point, and we calculate our weekly average using daily APRs provided by Zillow over the past five business days.
After last week’s Personal Consumption Expenditures price index (the Federal Reserve’s preferred measure of inflation) showed that inflation reached its highest level in three years, traders had speculated that central bankers might try to rein it in by increasing borrowing rates at their meeting later this month.
However, the June jobs report dropped this morning, showing that the labor market might not be quite as strong as expected. The U.S. gained about half as many jobs (57,000) as had been forecast last month (115,000).
Fed-watchers have adjusted their predictions, with a majority projecting that central bankers won’t raise borrowing rates until September at the earliest. Mortgage rates often rise or fall according to anticipated Fed rate moves.
So a Fed that holds steady would be good news for prospective home buyers who don’t want to get hit with even higher mortgage rates. However, this definitely doesn’t mean that borrowing is cheap or easy right now, with many still feeling locked out of homeownership.
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What it’s like to buy a home right now
Here are the typical numbers that home shoppers are currently contending with.
- Average 30-year mortgage rate: 6.28% APR.
- Median home price: $429,300.
- Median home buyer FICO score: 733.
- Median down payment: $23,400.
- Assumed property tax rate: 1.15%.
- Assumed homeowners insurance rate: 0.35%.
Note: This data comes from Zillow, the National Association of Realtors, Realtor.com and compiled research from the Harvard University Joint Center for Housing Studies.
If a borrower were to get a mortgage today with these example figures, their total monthly mortgage payment would be approximately $3,400.
It’s wise to avoid spending more than 28% of your pre-tax income on housing-related costs. With a monthly payment of $3,400, the combined monthly gross income of the household would need to be just over $12,140, or more than $145,700 annually to meet that affordability goal.
How mortgage borrowers can get the lowest rates
If these numbers seem intimidating, one way to make mortgage expenses manageable is to strengthen your financial profile before applying for a home loan.
For instance, borrowers with higher credit scores and relatively large down payments are more likely to receive lower rate offers. It’s often much easier for repeat borrowers to make sizable down payments compared to first-time buyers, since they usually have cash from their past home sale to bring to closing.
Lenders typically also reserve their best rates for borrowers with low amounts of existing debt (below 36%).
And finally, while it takes time to apply with multiple lenders, comparison shopping helps ensure that you find the lowest possible rate. You could also consider working with a mortgage broker, so that you’ll only provide your information once and receive offers from a range of lenders.
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