Don’t Wait on the Rate:
Make Today’s Rate Work For You
The current U.S. weekly average for mortgage rates on a 30-year loan as of 10/29/2029 is 7.24%. Like most homebuyers, you probably find these high mortgage rates discouraging.
That’s understandable, as high mortgage rates negatively impact your purchasing power and may make it harder to afford your dream home. The good news is that there are things you can do to offset the impact of these rates. Take a closer look at your options to decide whether now is a good time to become a homeowner.
What Can Homebuyers Do About High Rates?
Lenders are asking ourselves the same question – what can we do to help homebuyers with these high rates? Sadly, in the current economic climate we are all at the mercy of the high mortgage rates. For many of us industry veterans, the rates we are seeing have moved upward more rapidly than we have seen in many years and that makes it very difficult for borrowers. It can make current homeowners feel frozen into their current home loan if they have a better rate – even if the home isn’t meeting their needs, it can also make new home buyers feel like the dream of homeownership is out of reach.
While you can’t control the current rates – and sadly neither can we – there are a few ways you can do reduce their impact on your monthly payment and your home-buying dreams. Interest rates are largely driven by the economy but they also are impacted by risk factors including borrower and property considerations, with that in mind here are a few ideas of things you can keep in mind that may be able to have a positive impact on the rate and may bring that path to your dream home back into view:
Make Sure Your Credit Is Great Shape
Mortgage interest rates are impacted by your overall credit profile, this means your credit score, credit history, utilization, etc. According to a recent poll the average FICO score is 714, which in most cases is considered good and you would likely get a middle of the road rate. If your credit score isn’t great, your rate could be higher. Optimizing your credit score can help you get the best deal possible.
Here are a few ideas that may help give your credit a boost:
- Go to AnnualCreditReport.com for your free credit report to find out what accounts you have and ensure there is nothing unfamiliar on your credit
- Pay down on credit cards completely (if not possible, try to bring them below 30% of the credit limit)
- Ensure you are paying all bills on time
- Avoid excessive credit inquiries
- Avoid applying for any new loans or financing any major purchases until you complete the home-buying process
Also, it is important to understand that the credit score that your mortgage lender will see is different than what you will see on your credit card or bank accounts fico apps. On many apps you are seeing an educational score and that doesn’t use the exact same algorithm as a lender does, so don’t be surprised if the numbers aren’t exactly the same.
Save More for a Down Payment
Most investors look at loans with a lower loan to value (LTV) as lower risk so they will reward you with a lower interest rate. The change won’t be monumental but it is still something and these days every penny counts! Additionally, if you finance more than 80% of a home’s purchase price most loan type will require you to carry private mortgage insurance. On conventional loans, you will have the option to pay a monthly fee until the loan reaches the 80% LTV mark, pay a lump sum at closing to cover the charge in full for the insurance and avoid the monthly fee or take a higher interest rate to eliminate the monthly or upfront cost. On an FHA loan you will have upfront mortgage insurance as well as monthly mortgage insurance. If you put less than 10% down, you will be required to carry that mortgage insurance for the life of the loan whereas if you put down 10% or more you can eliminate it once the loan hits 78%. A PMI policy can add hundreds of dollars to your monthly payment.
Putting down a larger amount at closing can help you obtain a lower interest rate and potentially avoid private mortgage insurance, or at least shorten the period of time you have to pay it.
*Please note the Rural Development and VA loans have some fees associated with them but they are not private mortgage insurance.
Negotiate a Rate Buydown
A hot topic in a high rate environment is always rate buydowns. Interest rate buydowns come in the form of temporary or permanent options and can be funded by a buyer but also sometimes are negotiated into a contract and paid for by a seller. Essentially a rate buydown allows you to pay additional funds at closing to purchase points from your lender to lower your interest rate. If you do a permanent buydown then that would lower the rate for the life of the loan. Temporary buydown programs typically come in a few different varieties:
- 0/1 Buydown
- 2/1 Buydown
- 3/2/1 Buydown
For illustrative purposes in a 3/2/1 Buydown your rate is 3% below your locked rate in year one, 2% lower in year two, and 1% lower in year three. The goal of these programs is to allow the homebuyer to have access to lower payments for the first few years of their loan and the hope is that by the time you reach the end of the program, the rates will be in a more favorable position spot.
Is Now a Good Time to Buy?
Buying a home is a personal decision. There are no one-size-fits-all answers but rates shouldn’t be the sole deterrent that keeps you from your dream of owning a home.
The first step to seeing if now could be the right time is to connect with a loan officer to discuss your situation. They can help you navigate what programs are available to you and help you find a path to homeownership.
Tags: First-time homebuyer, home loan interest rate, loan options, mortgage basics, mortgage rate, second-time homebuyer
Categories: First Time Homebuyer, Home Buying, Homebuyer strategies, Mortgage Basics, Second Time Homebuyer
