Spending

Mortgage applications fall to lowest level since early 2020

Attractive rates aren't enough to keep buyers in an expensive and competitive housing market.

Share
Twenty/20

Mortgage applications fell 1.8% last week, according to the Mortgage Bankers Association's seasonally adjusted index, indicating that interest in new home purchases and home refinancing is at its lowest level since before the pandemic took hold in early 2020.

Although ultralow interest rates should be driving up demand, homes are scarce and increasingly expensive — which prices potential buyers out of the market, experts say.

"Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher," Joel Kan, MBA's associate vice president of economic and industry forecasting, told CNBC.

The traditional 20% down payment on the median home will currently run you $71,320, compared with $56,700 a year ago, according to data from the National Association of Realtors. You needn't necessarily pay the traditional 20%, however. Military veterans and their spouses can take out a VA loan, which doesn't require a down payment as long as the home's sale price doesn't exceed its appraised value. The same deal applies to the U.S. Department of Agriculture's loan program, which supports rural homebuyers. 

And depending on your income and the price of the dream home, you may qualify for a federally backed low-down-payment mortgage, which allows you to put down as little as 3%.

VIDEO6:2806:28
3 tips for buying your first home in a crowded market

Video by Richard Washington

Other ways to save on your mortgage

Boost your credit score

To get the lowest interest rate on a mortgage loan, aim for a credit score of 760 or greater, which is considered "very good" on FICO's scale. If you're not quite there yet, and you're looking to buy a home in the next few years, you still have time to boost your score into good or even "excellent" territory, reserved for scores of 800 or more.

Start by setting up automatic payments for your monthly bills, which will ensure that your score doesn't get dinged by late payments. Then take a look at your credit card usage. Ideally, you don't want your balance at any given time to exceed 30% of your available credit limit. This is called a credit utilization ratio, and it's a key factor in determining your score.

And if you can, pay your balance off in full at the end of each month.

Shop around for the best rate

Even if you have terrific credit, there can be a lot of variability in the rates that different lenders offer you. Shopping around for the best rate is worth it, experts say, because paying an extra couple of percentage points can make a huge financial difference over the life of your loan.

"Because of the lengthy payback on a mortgage, even a small difference in interest rate can add up to thousands of dollars saved over the life of the loan," Greg McBride, chief financial analyst and senior vice president at Bankrate.com, told Grow.

 More from Grow: