For many buyers, the housing market is difficult to navigate right now. They are rightfully concerned with mortgage rates hovering near 8%. High rates are driving up monthly mortgage payments to unaffordable amounts.
However, certain tips and tricks allow buyers to thrive in this housing market. Read on to learn 5 home buying tips during high-interest rate periods. Explore professional tactics to help you secure a home loan despite high mortgage rates.
1. Cash Is King
Cash is king when interest rates are so high. The more money that you save, the less you need to borrow.
A larger down payment also helps you secure the lowest interest rate possible. The minimum down payment on a loan guaranteed by the Federal Housing Administration (FHA) is 3.5%.
This leaves you financing the remaining 96.5%. Instead, it would be wiser to make a more conventional down payment of 20% or more.
You are not locked into a fixed-rate mortgage for the entire loan term. You can refinance when the interest rate situation is more favorable.
The U.S. Federal Reserve has already paused additional rate hikes. They understand that high interest rates place a burden on the economy.
Many experts believe the Fed will start lowering rates as soon as next year. This will present an opportunity to refinance and secure a lower rate.
3. Leverage Your Home Equity
Existing homeowners are not in a bad place in the current housing market. Housing prices are still near record highs.
The equity in your home has increased just as much as home prices have over the past few years. When you sell, you can tap into this equity and use it to lower your borrowing costs. Some homeowners can pay the entire sales price of their new home with existing equity.
4. Discount Points
Discount points are one way to secure a lower interest rate. Here, you pre-pay for interest instead of folding it into monthly mortgage payments.
You have to be careful when shopping for the lowest interest rates. It is important to calculate total financing charges over the life of the loan. Then select the loan strategy with the lowest cost impact for you.
5. Improve Your Credit Score
Your credit score is another major factor when applying for a loan. Before buying a new home, you should work to improve your credit score.
Lenders view a credit score as an indication of risk. To mitigate that risk, lenders give borrowers with a low credit score a higher interest rate.
This protects them from financial losses if the loan defaults. To secure the best interest rates, you need to pursue an excellent credit score.
Home Buying Tips for High-Interest Rate Periods
Buying a house in this environment is not easy. You can get the best deal by laying a strong financial foundation.
Save up for a large down payment. Use your equity to offset excessive home prices. Secure the lowest interest rates with a great credit score and discount points.
A property management company can help you navigate this real estate market. If you would like more home-buying tips from a professional, contact us today at PMI Wasatch Front to schedule a meeting.