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If mortgage rates are rising, how to decide whether to buy a house or rent

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Afford housing is getting harder.

Prices have risen almost 20% year on year, and mortgage rates are rising.

The interest rate on the 30-year fixed loan is now 5.57%. Daily Mortgage News, compared to 3.29% at the beginning of the year.

At the same time, consumer prices everything from gas to food is also accelerating, which costs Americans hundreds of dollars a month more. In an effort to curb inflation, the Federal Reserve raised interest rates on Wednesday by half a point.

Mortgage rates do not respond directly to the Fed’s rate hike on short-term rates because the former is based on long-term rates like The profitability of a 10-year treasuryexplained Greg McBride, chief financial analyst at Bankrate.com.

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However, he anticipates the possibility of some pain ahead for home buyers.

“Until we see strong evidence of easing inflationary pressures, the risk will be a significant increase in mortgage rates,” McBride said.

“But if we see easing inflationary pressures, mortgage rates can change quickly – especially if the economy is also slowing.”

Meanwhile, rent also growing.

“If you’re not sure if you want to rent or buy right now, it’s best to make a decision based on your personal situation and personal needs,” said Lexi Holbert, a housing and lifestyle expert at Realtor.com.

Take these steps before deciding whether to own a home or rent.

Conduct a financial audit

Ask yourself if you are financially ready to have a home. That includes enough emergency savings in case anything happens in your first year of home ownership, Holbert said. You must also have sufficient monthly income to afford mortgage payments, taxes and insurance, as well as additional monthly expenses such as utilities.

Check your credit report as well, since yours credit score has a direct bearing on the mortgage you get and the interest rate you can pay. If you see errors, correct them before applying for a loan.

If you can’t afford the monthly payments, keep renting and saving money if home ownership is your ultimate goal, Holbert said. If high rents don’t allow you to save, consider downsizing or making other major lifestyle changes so you can start saving more money.

“You read that if you cut the latte habit for $ 4, it will really help you save on the house,” she said.

“Although the savings are very good, but where you really find big money for this down payment, there will be such big expense categories as housing or your car.”

Evaluate your deadlines

Think about where you are in your life. Do you want to get a job somewhere for a while or move in a couple of years?

The general rule: to recoup the cost of the purchase, the house takes five to seven years, Holbert said. This includes closing costs, which add 2% to 5% to the purchase price.

“If your home needs are going to be fairly stable and fairly stable over the next few years, now may be a really good time to buy,” she said.

“If they change, you may want to consider renting so you can move.”

Set a budget

Finding out what you can afford if you bought a home is especially important now that house prices are rising, said McBride of Bankrate.

So you have boundaries around your home shopping.

“The position you don’t want to be in is to fall in love with a house and get your offer, and then figure out how to pay for it,” he said.

Check out homes in your price range on sites like Realtor.com or Zillow to determine if they fit your needs.