Mortgage rates today remain among the highest they have been since 2021, which continues to make borrowing money for a home more expensive and potentially more frustrating for homebuyers. Finding your path to homeownership when rates are high is not impossible. In fact, there are steps you can take to make sure you get the lowest rate possible. In this blog we will discuss what you can do to prepare for homeownership in this high-rate market.
Interest Rates and the Housing Market
Why are interest rates so important when buying a home? It is because interest rates will determine how much you will pay in total to purchase your property, which will be much higher than just the purchase price. In a high-interest rate environment like today, much of your monthly mortgage payment will go toward interest rather than toward paying down the principal of the loan.
But you have options. There are steps you can take to help ensure you get the best rate possible, according to NerdWallet.
- Review Your Credit: To be offered the best rate possible, you will need to ensure your credit is in excellent shape. First, obtain a free credit report and examine it to confirm all your accounts are accurate. File a dispute with any accounts that you do not recognize or that contain errors. This action will help avoid any negative impact or hits to your credit score, which determines the interest rate that lenders will offer you.
Focus on boosting your credit and eliminating debt to get your lowest rate possible, according to Forbes. Getting your credit in shape is something you can do months or even a year ahead of when you plan to buy a home.
- Make a Bigger Down Payment: Another way to lower your monthly payment and make your mortgage more affordable is to provide a larger down payment with your home loan. This will decrease the amount of money financed and leave you with a lower monthly payment, says CNBC. Some ways you could increase your down payment are to ask family members for help, tap into your 401(k) or other retirement account, or to seek government programs that can assist.
- Consider Homebuyer Assistance Programs: Digging deeper into government programs, one tip when buying a home in a high-rate housing market is to search for homebuyer assistance programs that could make your purchase more affordable. For example, if you are a first-time homebuyer there may be state or local programs to assist you.
These programs may offer down payment and/or closing cost assistance, explains NerdWallet. They can free up more of your cash so that you can make a higher down payment, which will lower your mortgage payment. Ask your realtor or your preferred financial institution to see what programs are available for you.
- Refinance When Rates Are Lower: A high interest rate should not stop you from fulfilling your dreams of becoming a homeowner. If you are financially able, you could buy your home now and refinance your high-rate mortgage when interest rates drop.
Remember, you can refinance your mortgage and are not tied to it for the life of your loan. Keep an eye on mortgage rates and consider refinancing if you can obtain a rate at least one percent lower than what you currently have. Be aware that you will have to pay closing costs again, but you will save money in the long run. Refinancing a high interest rate mortgage is a great way to lower your monthly payment, according to CNBC.
How TCU can help
Buying a home requires planning, commitment and a lender who can walk you through the entire home loan process. Travis Credit Union has been helping people buy homes since 1951. Our knowledgeable mortgage loan officers will find the right solution for you and make your path toward homeownership as smooth as possible, even during a high-rate market. Visit our Mortgage Hub to get started.
If you are thinking about homeownership but are not sure if you are ready, we can help. We will explain the home-buying process as well as help you prepare your finances, so you are ready. At TCU, we are here to help you achieve all your financial dreams, so contact us today at traviscu.org.