Rising interest rates and rising home prices have put many potential home buyers off purchasing in recent months.
While the prime rate increases the cost of borrowing for credit cards and other lending products, mortgage rates are more influenced by the bond market and the 10-year Treasury yield. With that in mind, here are some tips to help you manage the impact of rising interest rates on your home search.
Get Ready
It's nearly impossible to time a drop in mortgage rates with the purchase of a new home, and lower rates may even increase competition, so focus on what you can control.
One way you can control how much interest you pay on a new home is to make a larger down payment. Making a larger down payment will reduce the amount you need to borrow, which could result in a lower monthly payment and a lower interest rate. Making a 20% down payment also eliminates the need for private mortgage insurance (PMI), which can be an added expense during the homebuying process.
You'll also want to work with a lender to get pre-qualified and pre-approved so you're ready for when the right home becomes available. Pre-qualification helps you get a rough estimate of how much you can borrow, while pre-approval is a more thorough process that requires more documentation to determine how much home you can afford.
Talk to our Home Buying Team
Assembling a strong home buying team can help ensure a smooth process from start to finish.
Work closely with your lender to understand the types of loans available to you and which ones will best suit your financial situation. Your lender can help you weigh your options, including whether a fixed-rate mortgage or an adjustable-rate mortgage makes the most sense.
Government-guaranteed loans, such as Department of Veterans Affairs (VA) loans, also offer more affordable options for those who qualify. In addition to the affordable mortgage programs the lender offers, your lender can also help you identify federal, state, and local grants and other programs that you may qualify for. In some cases, these can stack up to help reduce your down payment and closing costs, making homeownership easier.
Staying in close contact with your lender can also help you determine whether it's worth buying points to lower your interest rate and when the best time would be to consider locking in your rate during the process.
Understanding and communicating your goals and financial situation will allow you to have an informed discussion with your home buying team to help you find the loan that best suits your needs and ensure the process goes smoothly.
Build your dream home
Building a home can be expensive – the gap is narrowing as existing home values rise – but it also offers greater certainty over costs and timelines.
Existing homes can require costly renovations or repairs to old or personal areas. Working with a home builder allows you to build the layout and configuration of your home exactly the way you want it, so you can move in the day the work is completed.
Broadening your home search or looking for homes that need work are also options that can help you find a home within your budget. Working closely with a lender and a real estate agent can help you evaluate your options and develop a plan to get the home of your dreams.
About the Author – Jeffrey M. Reuben
Jeffrey M. Reuben is President of WSFS Mortgage. He joined WSFS in August 2013 with the acquisition of Array Financial and Arrow Land Transfer, full-service mortgage banking organizations. Jeff founded Array and Arrow in 2005 after holding senior executive positions in financial and legal institutions. Jeff is also a licensed real estate attorney.
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