Combatting Rising Mortgage Rates
Lock and ShopIf you know you will be buying a house in the near future, but just haven’t found the right one, consider a “lock and shop” mortgage program. Many mortgage lenders – including CommunityAmerica – offer “Lock and Shop” options for mortgage loans, meaning you can apply for and lock in the current interest rate while still searching for your dream home. Not only is this the ideal product for homebuyers struggling to find the right fit for them, but it could even be beneficial for those just starting out on their house hunting journey. When you know you’re ready to purchase a home, consider taking advantage of these programs to lock in a lower rate now while shopping around without worrying if they’ll rise again.
Adjustable Rate MortgagesAnother option for financing your home in this rising rate environment is to consider an Adjustable Rate Mortgage – or ARM. Unlike your traditional fixed-rate mortgage that has the same interest rate over the life of the loan, the rate on ARMs adjusts with current rate conditions over time – for better or worse. This route for financing a home has become more and more popular as the year progresses. This is because, in most cases, ARMs will have a lower introductory rate for the initial fixed-period than a fixed-rate mortgage will. This can be a particularly good option for homebuyers who know they will not be staying in the house long-term (some ARMs have intro periods up to 7 years), or you are planning to pay off your loan quickly.
Boost Your Savings for a Down PaymentThis tip is pretty straight forward – making a larger down payment toward your home will reduce the amount you need to borrow, therefore lowering your monthly payment and the interest you will pay over the life of the loan. If you plan on starting the homebuying process in the near future, check out our Empower Blog where we share tips and tricks for budgeting, saving, and cutting costs so you have more money saved up to put towards a down payment!
Improve Credit and Pay Off DebtWhile it doesn’t take a perfect credit score to be approved for a mortgage loan, lenders typically reserve their best interest rates for borrowers with credit scores of 740 or higher. If you plan on buying a home in the near future, it is important to do what you can to raise your score before you apply for a mortgage. Now, we must admit that it does take time and effort to improve your credit score. For some tips and tricks, check out this blog on Building Credit 101.
One large factor that affects your credit is the debt you carry with you. This is also a factor that can make or break whether you get approved for a loan. Before applying, take a look at your debt-to-income ratio (DTI) – which is all of your monthly debt payments divided by your gross monthly income. Typically, the higher your debt-to-income ratio, the lower your credit score will be. This will make it tougher to be approved for a loan, and if you are approved, might leave you with a higher interest rate. To lower DTI, consider paying off car loans, student loans, personal loans, credit cards, and tax debt before applying for your home loan.
Important Note: While paying off debt may lower your DTI and improve your chance of being approved for a mortgage, it can also negatively affect your credit score. Find out why in our Credit Basics blog.
Although having a high interest rate isn’t ideal, it is important to remember that you are buying the house, not the rate. If you’ve found a home you love but a rate you don’t, don’t let that stop you – consider the options above to find a lower rate. If you still can’t get the interest rate where you’d like it, don’t forget that you can refinance your loan later on down the line. Remember, the market is always changing, and it’s hard to tell what it will looks like months from now. Talk with a Mortgage Advisor to discuss your situation, review your options, and remember keep your overall budget in mind. Happy house hunting!