When it comes to buying a home interest rates have always been a huge determining factor in figuring affordability. So what can be done, as a buyer, if rates are higher than they have been?
It is common to hyper focus on interest rates but the number that matters the most is the monthly payment on your new home. This is the number that you need to work with in order to stay within your budget.
If the interest rate is high that means that your affordability may be decreased. Basically, the amount you are qualified for may be less than expected and in some markets can affect your chance of buying a home. Don't worry though! There is always a solution, sometimes you just have to look a little harder. Here are some options that may be available to you.
1. An interest rate buy down
A buydown is just as it sounds. An opportunity to pay down (also known as paying points) in order to get a lower interest rate. These lower rates can be short term or long term so be sure you speak to your lender and you know which one you are getting. A temporary buydown will lower your payments up front for the first year years and then revert to the original rate afterwards. This may be a good option if you won't be living in the home long but not for those looking to stay or unsure of how long they will stay in the home. Permanent buydowns are negotiated with the lender and are typically for the life of the loan. They can be easier than temporary buydowns and may be able to be financed by the seller in contract negotiations as seller paid points/closing costs. There are additional factors when looking at a rate buydown that include buyer qualification, whether or not the loan program selected allows for them, and a seller's willingness to accept the contingency of financing a rate buydown. This could be a good solution if you are looking to buy a home and should be discussed with your lender and Realtor.
2. Increase your down payment
For some, increasing your down payment will help as it lowers the amount that you are financing and if you are able to do that it could be a good option. For most loan programs there is no limit for how much money you can put down on your new home. However, I would not recommend cleaning out your bank account to lower your monthly payment. Lowering the amount of money you spend is much smarter.
3. Use a Down Payment Assistance Program
If available to you, this program can help you achieve home ownership. These loan programs are especially helpful for those who need a home but don't have the down payment required to qualify. Talk to a local lender to see what programs are available. There are also programs available for teachers, first responders, and first time homebuyers so be sure to ask about those if you fit the criteria!
4. Take over an existing mortgage
This option typically applies to VA mortgages and could be a benefit if the rate is locked in at a lower amount. Keep in mind that you will still need to qualify just as you would for any new mortgage even though you are assuming the loan and releasing the seller from the loan. For questions about assumable mortgages be sure to speak with a local lender.
If you are thinking of buying a home and have financing questions, Matt Burns with United Community Bank is happy to answer any questions you have and give you a better idea of what loan programs are available to you, including possible zero down programs. Contact Matt to see how he can help.
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