Here’s how a 5% mortgage rate will impact first-time home buyers

BOSTON — Matt Pooler started searching for a new home six months ago. It’s been a long, disappointing process.

“I think because everyone wants to move right now, the prices are just insane,” the 31-year-old Jamaica Plain resident said.

With rapidly rising mortgage rates, it could get even harder for buyers to land their dream house. This week Freddie Mac announced mortgage rates averaged five percent for the first time in a decade, an increase from 4.72 percent last week and 3.04 percent a year ago. The last time mortgage rates averaged five percent was in Feb. 2011.

“I’ve never seen anything like this. We’re talking almost two points [in a few months]. That’s a lot,” said Kevin Vitali, a North Shore realtor with 20 years of experience. “I’m thinking it’s going to become a more balanced [housing] market where neither buyers nor sellers are going to be in the driver’s seat.”

First-time home buyers may be losing a lot of buying power. According to Vitali, if someone was pre-approved for a $600,000 mortgage a few months ago, they may now only be able to qualify for a mortgage that is $500,000 or less. He also said the rising mortgage rate could mean an additional $500 to someone’s monthly mortgage payment.

Vitali said if you have pre-approval that’s more than a few weeks old, talk to your mortgage broker and get a new one. That way you’ll know how the new mortgage rate will impact your budget.

“You want to make sure you get a current pre-approval so you’re talking about realistic prices or realistic mortgage payments so you can make the decisions and make the offers you need to make,” he said.

Vitali also believes the rising interest rates could hurt sellers, too.

“It’s been the wild west. Sellers have ruled the roost and now they’re going to have to pull back and be a little bit more reasonable,” Vitali said. “Sellers can’t be as aggressive. They might need to lower their expectations a little bit.”

Pooler said he’s going to keep searching for a new home, then reassess at the end of the summer.

“All I can do is wish for the best of luck. These sort of things are way beyond any one person’s control,” Pooler said.

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