It’s no secret that interest rates are high. And when rates surge, home-seeking individuals are faced with more challenges in obtaining a good mortgage rate when buying homes.
Here are some tips to help homebuyers during times they are faced with higher interest rates:
■ First off, you want to meet with a lender to help assess what you can afford in this market.
■ A lot of lenders are offering a 2-1 interest rate “buy-down” program. This allows you to have a lower interest rate in the first couple of years of your mortgage. The idea is that interest rates will lower within the next few years, and you will be able to refinance into a lower-fixed interest rate. For example, if the interest rate being offered is 7 percent, in the first year the interest rate would decrease 2 percent, so it would be 5 percent. And, then in the second year, it would decrease by 1 percent from the original, so it would be 6 percent.
■ Request seller credits to help you buy down the rate. This is happening to a greater extent in the market right now. Buyers are opting to use their seller’s credits to buy down the rate as opposed to covering closing costs.
■ There are loan programs that allow you to borrow if your credit isn’t ideal, but your credit score does have an impact and affects the rate. It would be smart to work on increasing and improving your credit score to help get the best rate possible.
■ While many people don’t have cash for houses, it would be wise to put more money down if possible. If this can be done, you can borrow less. This will help with obtaining a more favorable interest rate and reducing your monthly payment.
■ There is a saying in real estate, “marry the house, date the rate.” If you are ready to buy and can afford the monthly payment, then get the house. You can always refinance into a lower rate when they come down. Remember, an interest rate is a means to an end. Owning real estate — like homes — is one of the best and safest investments out there.
■ It’s not necessary to go with the first lender you meet. Shop around. Different lenders can offer different interest rates, and meeting with others is a good way to shop for a lower interest rate. If you are loan shopping, make sure to compare the APR (annual percentage rate), as that is the total cost of borrowing money.
■ Have an open mind. Sometimes expectations need to be adjusted.
For first-time homebuyers it’s important to remember that your first home may not be your dream home, but it will help you get to that point someday. Just remember to follow some tips of the trade to obtain the best mortgage rate possible as interest rates escalate.
Laine Blackmon is a loan officer with Blackmon Home Loans, a Las Vegas-based home loans and mortgage lender.
