If you’re thinking about buying, but scared and worried about high mortgage rates, what can you do right now?
1. Ask about a 3-2-1 buydown.
A 3-2-1 buydown can temporarily reduce your mortgage interest rate during the first three years of the loan. The buyer’s rate is typically 3 percentage points lower in year one, 2 percentage points lower in year two, and 1 percentage point lower in year three, before returning to the full note rate in year four. (By year four, mortgage rates may decrease, so you can refinance!). Similar to a 3-2-1 buydown, a 2-1 buydown lowers the mortgage rate by 2% in year one and 1% in year two.
In some transactions, the seller may contribute toward the cost of the buydown as part of the negotiation. This can give buyers some breathing room during the first few years of homeownership while allowing them to purchase in today’s market.
Ask your mortgage professional whether a 3-2-1 buydown (or 2-1 buydown) is available for your loan and whether it makes financial sense for your particular situation. If not, there are other buydown options available too!
2. Consider your down payment.
A misconception is that you need a 20% down payment to purchase a home, and that couldn’t be further from the truth! While a 20% down payment does offer many benefits, you can basically choose whatever percentage you want, and your mortgage broker can help with determining what makes sense for you and your financial situation. Conventional loans start at 3%, and we’ve seen down payment amounts anywhere from 3% to 50%!
A larger down payment can reduce your monthly mortgage payment and, with 20% down on a conventional loan, it eliminates the need for private mortgage insurance (PMI). A larger down payment can also potentially decrease your rate and lower your monthly payments. Have a monetary goal in mind and start putting money away in that savings account (a high-yield savings account!).
Don’t forget that buyers will also have to put aside money for closing costs – about 2-5% of the purchase price. That is in addition to a down payment.
3. Talk to a mortgage professional early and often.
You may have more options than you realize. A good mortgage broker can walk you through different price points, down-payment scenarios, rates, buydown options and monthly payments so you can make decisions based on your actual numbers, not headlines. Your mortgage broker will be your trusted confidante, guiding you through the process, offering advice, and helping you every step of the way. Start that relationship now so that when you’re ready to purchase a home, you have that history and they know your financial situation.
4. Keep an eye on your credit.
Paying bills on time, managing debt, keeping old accounts open, and reviewing your credit report can all help put you in a stronger position when you’re ready to finance a home. Credit score plays a huge part in your purchasing power and what type of loan offered to you. Again, your mortgage broker can help clean up your credit report.
5. Start watching the market now.
Even if you’re not ready to buy today, understanding inventory, pricing and what is selling in your target neighborhoods can give you a significant advantage when the right home comes along. You can also attend open houses or scan Zillow for listings in your town.
Our team provides information about all of these things and more on our weekly email blasts. Join our mailing list on our website and we will add you to our email database!
And don’t forget: real estate is local. National mortgage-rate headlines tell only part of the story. What is happening with inventory, pricing and buyer demand right here in Fairfield and New Haven County can look very different from what you’re hearing nationally.
The bottom line? Higher rates are something to pay attention to, not something to fear.
There are still buyers buying, sellers selling and transactions happening every day. The key is understanding your options, having a strategy and working with professionals who can help you navigate the market as it changes.
And if you’re thinking about buying, our new FREE app is a great place to start. You’ll get real-time listing updates, property alerts and access to valuable home-search information. Download the app, select your Realtor, and start watching the market before you’re ready to make a move.
The best time to buy or sell isn’t determined by one headline or one interest-rate number. It’s determined by your individual goals, finances and circumstances.
