7 Ways Homebuyers Can Outsmart Today’s High Mortgage Rates

Ways Homebuyers Can Outsmart Today’s High Mortgage Rates

Patrick Rumore

5/10/20234 min read

a computer screen with a chart on it
a computer screen with a chart on it

7 Ways Homebuyers Can Outsmart Today’s High Mortgage Rates

Buying a home can be a great investment in your future, but it's important to be aware of the costs associated with homeownership. One of the most significant costs is the interest rate on your mortgage. Interest rates can have a big impact on your monthly mortgage payment and the overall cost of your home. If you're concerned about high-interest rates, there are several ways to outsmart them. In this blog post, we'll explore five strategies that can help homebuyers outsmart high-interest rates.

  • Improve your credit score

Your credit score is one of the most important factors that lenders consider when determining your interest rate. The higher your credit score, the lower your interest rate will likely be. If your credit score is less than ideal, take steps to improve it before applying for a mortgage. Pay your bills on time, keep your credit utilization low, and avoid opening new credit accounts. You can check your credit reports and check your score here.

  • Shop around for lenders

Different lenders offer different interest rates, so it's important to shop around and compare rates from multiple lenders. Don't just focus on the interest rate; also look at the lender's fees and other costs associated with the mortgage. A lower interest rate may not always mean a better deal overall.

  • Mortgage rate buy-downs

Mortgage rate buy-downs have become very popular in the past couple of years as the interest rates on mortgages rose rapidly.

A mortgage buy-down is a strategy that allows you to pay a lump sum upfront to lower your interest rate over the life of your mortgage. Essentially, you're paying the lender to reduce your interest rate. This can be a good option if you have extra cash on hand and want to reduce your monthly mortgage payment.

Essentially, someone (either the buyer, the seller, or the builder) makes an upfront payment to 'lower the monthly interest rate' for the first couple years of the loan.

One of the most popular products, the 2/1 buy-down. In the 2/1 buy-down, you make a lump sum payment to the lender, and the first year of your mortgage is 2 percentage points lower than you actual rate. The second year, your interest is 1 percentage point lower. You pay your full interest rate from the third year on. One thing to be prepared for is the higher mortgage payment when the buy-down ends. You also need to qualify for that higher monthly payment when getting the mortgage with the buy-down.

There is always the option of refinancing if the rates drop... and there are some lender offering no fee refinancing if the rates drop 1/2 percent of more!

In all reality, the 'fee' you pay upfront is distributed monthly by the lender to 'reduce' your monthly payment.

  • Increase your down payment

The more money you can put down on your home, the lower your interest rate may be. This is because a larger down payment reduces the lender's risk, which can result in a lower interest rate. If you're not able to put down a large down payment, consider saving up for a few more months to increase your down payment amount.

  • House hacking

House hacking is a strategy where you live in a multi-unit property and rent out the other units. Or buy a house 'larger than your needs' and rent out a room or two. Basically, take in some roommates By doing this, you can hopefully generate enough rental income to cover your mortgage payment (or close to it), or potentially even make a profit. This can be a good option if you're willing to live in a multi-unit property and manage tenants.

Instead of buying single-family dream home, considering purchasing a duplex and rent out half of it. Or, you might buy a property with an accessory dwelling unit (ADU) and rent that out. If you are able to get a 3-4 unit building (maybe with friends or family) and rent out all of the units you’re not living in.

It's important to note that house hacking may not be legal in all areas, so be sure to check your local zoning laws before pursuing this strategy.

  • Down Payment Assistance, First Time Home Buyer

Down payment assistance programs are available in many areas and can help first-time homebuyers with their down payment and closing costs. These programs are typically administered by state or local governments, and can provide grants or loans to help with the upfront costs of buying a home. It's important to note that down payment assistance programs may have income limits and other eligibility requirements, so be sure to research the programs available in your area.

  • Consider a shorter loan term

A shorter loan term, such as a 15-year mortgage instead of a 30-year mortgage, can result in a lower interest rate. This is because the lender is taking on less risk by lending you money for a shorter period of time. Keep in mind that a shorter loan term will also mean higher monthly payments, so make sure you can afford the payments before choosing a shorter loan term.

In conclusion, high-interest rates can be a concern for homebuyers, but there are several ways to outsmart them. By improving your credit score, increasing your down payment, shopping around for lenders, considering a shorter loan term, and locking in your interest rate, you can potentially save thousands of dollars over the life of your mortgage. Remember to do your research and take your time when choosing a mortgage to ensure that you're getting the best deal possible.

Any questions, or if I can help you in any way, please contact me, I'm here to help!