Buying a home is an expensive proposition in the best of times, but things get even scarier when mortgage rates are on the rise. Unless you are independently wealthy, your new home is likely to come with a hefty mortgage, and the higher the rates go, the more costly that purchase will be.
If you are forced to shop for a home in a rising interest rate environment, tread cautiously. You can still buy a home, but only if you protect yourself with these seven survival tips.
1. Do what you can to boost your credit score. Qualifying for the lowest possible interest rate is even more important when overall rates are on the rise. If you have not already done so, working hard to improve your credit score is the obvious first step to take.
2. Save for a larger down payment. One way to prepare for rising mortgage interest rates is to reduce the amount you need to finance. Saving for a larger down payment will allow you to make the most of the time you have available.
3. Downsize your expectations. When interest rates are on the rise, stretching your home-buying budget to afford a larger home can be an especially bad idea. The higher-priced home will exacerbate the harmful impact of those rising interest rates, so you might want to downsize your expectations.
4. Look into government-sponsored loan programs. Help is available for first-time home buyers, veterans, and those with limited income. If you qualify for one of those loan programs, you could grab a below-market mortgage rate.
5. Consider delaying your purchase. High mortgage rates do not last forever, and when they start to fall, they can fall quickly. If you have time to wait, you might want to sit out the housing market for a little while.
6. Shop around. Every mortgage lender has their own set of criteria, and that can impact the rate you are offered. If you want to get the best possible deal, it pays to shop around.
7. Consider an adjustable rate mortgage — but know the risks. When mortgage rates are on the rise, some lenders will offer adjustable programs that come with attractive rates of interest. While an adjustable-rate mortgage may be able to save you money, there is always the risk it will adjust sharply upwards if mortgage interest rates hold steady or continue climbing.
In a perfect world, home shoppers would be blessed with favorable interest rates, but the real estate world is less than perfect. If interest rates are moving in the wrong direction, you will need to move fast — and carefully. The seven survival tips can help you live out your dreams of home ownership without succumbing to the nightmare of rising mortgage interest rates.
