Mortgage rates are over 7% and it’s getting harder to qualify for a loan

This is a double whammy for potential home buyers. Not only are interest rates rising, it’s getting harder to qualify for a loan.

The average rate on the popular 30-year fixed mortgage rose more than 7% at the end of last week and is expected to reach 7.125% on Tuesday, according to Mortgage News Daily. It has been over 7% for several days now.

Meanwhile, mortgage affordability is now at its lowest level since March 2013, when housing slowly recovered from the financial crisis at the end of the previous decade. According to the Mortgage Bankers Association Monthly Index, it fell for the seventh straight month in September, down 5.4% from August.

While lenders may be desperate for business as demand for mortgages drops due to higher rates, they are also more concerned about a weaker economy that could lead to more delinquent payments. Policymakers and economists are warning that the US could slip into recession in the coming months as the Federal Reserve raises rates to fight high inflation.

“There was less appetite for a lower credit score and a higher [loan-to-value] loan programs,” Mortgage Bankers Association economist Joel Kahn said in a press release.

Mortgage delinquency is currently at an all-time low. While new foreclosure claims rose 15% from July to August, they were still 44% below pre-pandemic levels, according to Black Knight, the mortgage software and analytics company.

According to the Mortgage Bankers Association, credit availability has fallen the most for large loans, which more borrowers are having to use today due to higher home prices. Higher prices also force more borrowers to turn to adjustable rate mortgages because they offer lower interest rates. These lending rates can be fixed for up to 10 years, but are considered riskier mortgages.

Borrowers are clearly worried that mortgage rates will move even higher. While mortgage rates do not exactly match federal funds rates, they are heavily influenced by Fed policy.

“The Fed is determined to raise rates as high as they can and hold them for as long as they can, even if it means the economy will suffer,” Mortgage News Daily COO Matthew Graham wrote on his website.

Graham noted that the Fed is not looking at mortgage rates or the housing market because housing prices are overheated and a correction is “good and necessary.”