You have worked hard to save up for a down payment, scrimping and saving to get out of that rental and into a home of your own. Now it is time to go house shopping, and right on schedule, mortgage rates start going through the proverbial roof.
There is not much you can do to make rising mortgage interest rates go down – these rates are determined by a number of factors that are largely outside your control. You can, however, take some steps to make those rising mortgage rates easier to live with, so you can still get a great home at a price you can afford. Here are five steps you should be taking if you are buying a home in a rising mortgage rate environment.
Step #1 – Boost Your Credit Score as High as Possible
Whether mortgage interest rates are falling fast, holding steady, or rising fast, your credit score will play a major role in how much your home loan costs, and whether you qualify at all. Even if you are only starting to think about home ownership, it is important to boost your credit score as high as possible.
Raising your credit score fast is not as difficult as you might think, and sometimes a few simple changes can make a world of difference. Paying down high-interest debt, for instance, will free up cash for the down payment while improving your credit score and making it easier to qualify for a mortgage with a favorable interest rate.
Step #2 – Get Preapproved for a Mortgage As Early as Possible
It is always a good idea to get pre-approved for a mortgage before your start shopping for a home. Faced with two buyers, one who is pre-qualified for a mortgage and one who is not, the seller is more likely to accept an offer from the former.
In a world of rising mortgage rates, however, pre-approval has another key benefit – namely, locking in the offer quickly before rates can rise even higher. Getting pre-approved is always important, but it is even more so when mortgage rates are expected to go up.
Step #3 – Shop Within (or Below) Your Target Price Range
Getting pre-approved for a mortgage will make it easier to compete in a difficult housing market, but there is another big benefit. By getting pre-approved for a mortgage, you will know exactly how much you can afford to spend, and that will make it easier to target homes well within your price range.
In a world of high and rising mortgage interest rates, it is even more important to shop smart. Just because you can spend $500,000 on a mortgage does not mean you should, and sometimes shopping below your price range is the best way to navigate those tricky waters.
Step #4 – Seek Grants and Other Assistance for Down Payments and Closing Costs
Believe it or not, there is free money to be had in the housing market, and qualifying for it could make buying a home a whole lot easier. From targeted programs for low-income buyers to grants for first-time homeowners, any help you receive with closing costs and the down payment will be welcome, so talk to your lender and to community organizations to see what you might qualify for.
It is important to start checking early, as many of these programs are limited in scope. With only so much money to go around, if you wait too long you might miss out on help with down payments, closing costs, and other housing-related expenses.
Step #5 – Drive a Harder Bargain
Rising mortgage rates are bad news for home buyers, but they are not exactly welcomed by sellers either. When mortgage rates are on the rise, many buyers will choose to wait until things look better, and that could give you more bargaining power.
Getting the most home for your money is even more important when mortgage rates are on the rise, so do not be afraid to flex your home buying muscles and push for lower prices and other accommodations. Every dollar you save on the purchase price is one less dollar you will have to pay in mortgage interest.
There are many things that factor into mortgage rates, from the larger macroeconomic climate to the individual decisions of the various banks. In this type of environment, there is not much individual home buyers can do to control the interest rates they pay, but that does not mean they are powerless in the face of rising mortgage costs.
By following the five steps outlined above, you can help blunt the impact of rising mortgage rates, all while getting the home you want and building the wealth you deserve. The more you know about the home-buying process, the easier it will be to deal with rising rates.