Mortgage interest rates have gone up significantly over the past three months, and the changing market has certainly impacted many buyers. But being financially prepared and planning for current and future market conditions can offset much of the uncertainty that accompanies rising rates. Dan Moran, executive vice president of sales for mortgage banker Proper Rate, reminds us that a little perspective can help too. According to Moran, though the national average 30-year fixed rate is now around 6%*, that’s still more than 1.5 points below the 50-year historical average.
Following are some helpful suggestions as you embark on – or continue – the search for your dream home.
Be Conservative With Your Money
Make sure your purchase funds are accessible and secure in a low-risk account. In addition to having your planned down payment, you may want to also set aside extra funds to counter the effect that higher rates can have on qualifying loan amounts or monthly mortgage payments. Additionally, this is a great time to reevaluate your expenditures and cut costs where you can in an effort to grow your savings.
Know Your Financial Health
You’ll also want to take a second look at your credit report for any mistakes, as your credit score will have a direct effect on the interest rate you can secure. The higher your score, the more likely it is your lender will offer you a lower rate, and vice versa.
Be Flexible and Set Boundaries
A few months ago, buyers might have been focused on one price point and location. Today, “if/then” scenarios are more common. Work closely with your real estate agent and mortgage broker to understand exactly how interest rates affect your purchasing power and be ready to adapt. Price, home type, location, and loan type could all be in play.
A Tool for Financial Versatility
A mortgage is often viewed as a near-permanent commitment. In reality it’s a vehicle that can help you accomplish a variety of financial goals. The fact is most 30-year mortgages are rarely held for 30 years. Therefore, homebuyers who anticipate moving as their needs change might be comfortable with an adjustable-rate mortgage (ARM), which has a lower interest rate that resets after an initial term – usually 5 or 7 years. Homeowners also have the opportunity to refinance if interest rates come back down.
While rate hikes can alter home buying scenarios, they can also create unexpected advantages. As the housing market shifts, buyers are likely to see more inventory and less competition. And after several months of double-digit growth, housing prices will likely begin to taper, further reducing your costs.
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*National average rates and historical rate data according to Freddie Mac as of 6/16/2022. National average rates are not advertised rates from Proper Rate.