Tips for buying a home when rates are over 5%.
Tips When Rates are High – While mortgage interest rates are higher than they were a few years ago, they are still historically low. Between 1971 and 2020, average rates on a 30-yr mortgage were close to 8%. Higher rates are generally associated with periods of economic growth, lower unemployment, and wage growth. It may cost you more to purchase a home right now than a year ago, but it is still a good time to purchase.
Look beyond the 30-yr fixed rate mortgage.
There are a variety of mortgage loans available, which can be confusing for buyers. Now that the real estate market is less competitive, buyers can consider special loan programs with lower down payment requirements, such as FHA, VA, and USDA. Buyers should also consider fixed vs. adjustable-rate mortgages. ARM (adjustable-rate mortgages) loans typically offer a lower fixed rate during an introductory timeframe, after which your rate can adjust up or down depending on the current rates. Adjustable-rate mortgages can be refinanced when rates are lower in the future.
Find ways to strengthen your mortgage application.
Your interest rate will be based on financial market trends, your credit score, and other financial factors. Steps that help improve your credit score include paying your bills on time, checking your credit reports, and correcting any mistakes. Paying off debt and canceling credit cards may improve your situation but check with your lender first because there are other considerations when weighing paying off debt versus a higher down payment.
Get Pre-Qualified for your Mortgage but be prepared to adjust your budget – multiple times.
Getting pre-qualified is a good indicator of how much you can borrow but remember, as interest rates fluctuate, that will impact your monthly payment, and you may have to adjust your budget. Other factors affecting your monthly payment are property taxes and HOA fees on the specific properties for sale.
Ask the Seller to Buy Down The Interest Rate.
Buyers can ask the seller to pay to buy down your interest rate, either for a year or 2 or for the entire length of the mortgage. This may be a critical tool in your negotiations to get you the house you want with a reasonable monthly payment.
Look for homes that have been on the market for a while.
In the recent market, many homes were going under contract within a week of being listed for sale. However, if you can find a home that has been on the market for a little while, the seller may accept a lower price and be willing to cover closing costs.
Mortgage interest rates are relative because rents are still very high in the Triangle NC area. Buying will be less expensive than renting long-term because you will be in control of your destiny, both financially and physically. It is a fact that homeowners have a higher net worth than renters, and homeownership continues to be the best way to reach financial independence.
Contact Amy Shair
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