Interest rates are rising, which has many buyers wondering if they can still buy a home. While there’s no denying that buying is more expensive now than in the recent past, it’s still possible to become a homeowner. Use the four hacks to help you afford a home in a rising interest rate environment.
Shop around for the right lender
The first step to buying a home in a rising interest rate environment is to shop around for the right lender. Every lender will present a different fee structure and offer you a different interest rate, so shopping around can help you save big. It’s smart to get quotes from at least three lenders before making a final decision.
When you’re ready to start gathering quotes, make sure to submit all your inquiries during the same 14-day period. The credit bureaus call this your “rate shopping window” and will count multiple similar inquiries as one during that time. Additionally, remember to give each lender the same information. This will make it easier to make an apples-to-apples comparison once you have the quotes in hand.
Figure out a realistic budget
Setting a realistic budget is key whenever you’re shopping for a home, but especially so when interest rates are high. Put simply, defining a budget will help you ensure that you don’t overextend yourself financially.
While looking at a pre-approval is a good way to get a rough idea of how much you can afford to spend, it’s also smart to do your own math so you’re sure that all your monthly expenses have been included. As a rule of thumb, you don’t want your housing costs (meaning your mortgage payment, property taxes, and homeowner’s insurance) to exceed 30% of your pre-tax income.
That said, the 30% figure is a guideline. Everyone’s comfort level is different. You just need to make sure that your housing costs fits nicely into your budget and that you aren’t stretching yourself too thin.
Consider homes priced below your buying power
Once you’ve set your budget, it’s time to start looking at homes. In this case, you may want to look at homes that are priced below the top of your budget. The wiggle room in your budget will give you peace of mind and ensure that you’re still able to afford the home if rates go up while you’re still looking for your perfect match.
Ask your lender to present multiple loan options
There are many different loan products out there and, while they all have their pluses and minuses, each loan option will have a unique impact on your budget.
For example, adjustable-rate mortgages often offer lower introductory interest rates than their fixed-rate counterparts. However, they also carry a risk of your payment increasing over time.
Similarly, you can buy points as a method of bringing your interest rate down closer to the market rate. However, each point comes with an upfront cost that will need to be paid at the closing table.
Ask your lender to present a series of options to you so that you can weigh the pluses and minus of each one and select the loan that’s the best fit for you.
Learn about your loan options
Do you need more help navigating the current rate environment? Reach out to Premier Nationwide Lending today!
Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.