When mortgage rates go high, you can go low. You have choices - strategies - to get a lower mortgage rate - and get that home of your dreams. I'm Dan with homebuyer. com. Let's get into it. [Homebuyer. com doorbell. Make your dogs bark. ] Hello and welcome. You're here! Homebuyer. com is the mortgage lender for first time buyers. We share timely, relevant information to help you buy your first home.
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10 Expert Tips
TIP 1: Close Faster / Rate Lock Length
TIP 2: Pay Discount Points
TIP 3: Seller Concessions
TIP 4: Temporary Mortgage Rate Buydowns
TIP 5: Adjustable-Rate Mortgages (ARMs)
TIP 6: Raise Your FICO 20 Points
TIP 7: Use HomeReady or Home Possible
TIP 8: Use a First-Time Home Buyer Program
TIP 9: Raise Your Down Payment To The Next 5 Percent
TIP 10: Get Multiple Rate Quotes
Get Pre-Approved For Your Mortgage:
Okay, this Post is about buying a home when mortgage rates are rising or when they're higher than you want them to be. Which might be all the time - rates can always be lower. And with rates up, we'll give you ten distinct mortgage strategies - some that work together - some that stand alone - each designed to get you a lower mortgage rate than you'd likely get on your own. These aren't rehashed ideas from other web sites, either. Homebuyer. com is a mortgage company. We do this for a living. And when rates are rising - knocking down those percentages is usually the difference between getting the home of your dreams and losing out to competition. Getting the home is the goal. Also, before we begin, we're going to make an assumption about your mortgage and that's that
you're using the right mortgage for your financial goals - that your loan is the most suitable for the home you're wanting to buy and for yourself. So, if you don't already know which mortgage type suits you best, get your mortgage pre-approved. That's what a pre-approval is for. To set the framework for your purchase - and set you up to have success. So, give your complete pre-approval application and let the system tell you which loan for you is best. You can get a pre-approval online - right now if you want to - at homebuyer. com slash fast. It's quick, it's online, and you don't even have to talk to a person if you don't want to. Just follow the prompts and go from there. So, that brings us to the first strategy for buying a home when mortgage rates are high.
Tip 1: Close Faster / Rate Lock Length
Strategy one: Close on your home faster. This first strategy for getting a lower mortgage rate is about mortgage rate locks - your mortgage lender's commitment to give you, the buyer, a specific mortgage rate for a specific mortgage product for some number of days - from today into the future. You can choose 15 days, 30 days, 45 days - Mortgage rate locks are grouped into 15-day windows and each 15 days additional raises your rate - in general - by an eighth of a percentage point - 0. 125 percentage points. So if you can close in 15 or 30 days, that's your lowest rate possible.
At 45 days, your mortgage rate moves higher. At 60 days, it goes higher again. So, when you write your contract, think in 15-day increments. Don't close in 46 days - make it 45. Don't close in 31 days. Make it 30. Shorter rate locks reduce interest rate risk - for your lender - so, to compensate, your lender gives you lower rates. Close faster, get a better rate.
Tip 2: Pay Discount Points
Strategy two: Pay for mortgage discount points. Mortgage discount points are upfront fees, paid at closing, that get you - the buyer - access to interest rates you otherwise wouldn't see. The "discount" in discount points is the interest rate discount - the reduction in rate - and you can get as many or as few discount points as you want at your closing to bring your interest rate down. In general, every point you pay lowers your rate a quarter percentage point - zero point 25 - and the cost of a discount point is one percent of your loan size - of the amount you're borrowing. So if your mortgage size is $100,000, and you're paying one discount point on your loan, that point
costs $1,000 - one percent of your loan size. Now you may not like this particular strategy to get a lower rate because it adds to closing costs - and you might prefer to save your cash for other costs or for furnishing your home. That's totally fine because there's another way to put discount points on your mortgage that doesn't cost you cash and that's to have the seller pay mortgage discount points for you. Which brings us to…
Tip 3: Seller Concessions
Strategy three: Negotiate for seller concessions. Seller concessions are when the seller takes money from the closing - that it's collected - and gives that money back - concedes it, literally - to you, the buyer - for costs associated with the purchase. It can be anything. Government fees. Cost of an appraisal. Title fees. And - discount points. You can negotiate with the seller to take some of their proceeds and lower your interest rate with it.
This is different from lowering the sales price to make the home more affordable. This is lowering your interest rate and, therefore, your monthly payments. If this feels weird to you, it isn't. Seller concessions are so common that they're included in the official mortgage guidelines for all the major loans - conventional, FHA, VA, USDA, and jumbo - which also means there's a rulebook for how to write them into a contract. Seller concessions are typically capped at 3 percent of the purchase price which can buy your rate down by a lot. Sometimes, you can go up to 6 percent. If you have questions about seller concessions and how they work, leave your comments in the comment section below. I read everything and will respond to your question.
Tip 4: Temporary Mortgage Rate Buydowns
Strategy four: Do a temporary mortgage rate buydown. Temporary mortgage rate buydowns are a form of seller concessions, like we talked about in Strategy Three - just a little more focused on just your interest rate. Temporary mortgage rate buydowns lower your interest rate - temporarily - for a year, or two years, or three - depending on how you want to set it up. The length of your buydown - the number of years - is how it's named. The 3-2-1 buydown is for three years of rate reduction. The 2-1 buydown is for two years.
And so on. You lock a mortgage interest rate and - with the buydown in place - you get a discount. In Year One, your interest rate is reduced by the number of years remaining in your buydown. On a 3-2-1 buydown, in that first year, your interest rate is 3 percentage points lower than your "permanent rate". And that lower, bought-down rate is how your payments get made. So, you're paying a mortgage in that first year based on a mortgage rate 3 points lower than your actual rate.
That's a lot. Then, in the second year, your interest rate is reduced by 2 percentage points and your payments for the year are based on that rate - two percentage points below your permanent rate. Next, in the third year, your rate is reduced by one point from the permanent rate. And you make your payments off that. So after all three years aree done, your original rate returns and you ride it rate and payment for the remaining years in the loan.
The cost of doing a mortgage rate buydown - of taking that temporary reduction in rate - is roughly the same as the accrued difference in mortgage payments you would have made - in dollar terms - over those same three years. If you do a 3-2-1 buydown and it saves you $8000 in mortgage interest, the cost of your buydown will be roughly $8000. So, why would you do a temporary mortgage rate buydown if the cost and the savings roughly equal out? And the answer is that you wouldn't. But the seller would - as seller concessions because buydowns can be a less expensive alternative to paying for mortgage discount points.
Tip 5: Adjustable-Rate Mortgages (ARMs)
Strategy five: Use an adjustable-rate mortgage. Adjustable-rate mortgages - ARMs - A R Ms are mortgages where the interest rate can adjust over time. Adjustable rates are an optional feature on a mortgage that lets you as the buyer share in time risk with the lender - so the lender doesn't get stuck holding a relatively low interest rate mortgage for 30 years while the interest rate in the market goes higher and then stays there. When lenders can share with a buyer some of that time risk - of that 30 years - lenders will also share lower, more friendly interest rates.
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And ARMs can be winners for both sides. Over the three decades, as mortgages with adjusting rates have come up for their adjustment, a lot of the time they've tended to adjust lower, which surprises many people. ARMs have outperformed fixeds. And because they've got built-in protections against rapidly rising rates - as in, it's not allowed - government rules don't let ARMs move more than 2 percentage points per year once they start changing - adjustable-rate mortgages can be a clever way to lower your initial rate 1 to 2 percentage points as compared to a 30-year fixed.
Tip 6: Raise Your FICO 20 Points
Strategy six: Raise your credit score by twenty points. Another tip for getting a lower mortgage rate, when mortgage rates are rising, is to get a higher FICO - a higher credit score. With every twenty point increase in your score, from 620 to 640, from 640 to 660, from 660 to 680, and so on - with every twenty point jump, you get better mortgage terms - including a lower rate. Because with conventional mortgage loans - loans backed by Fannie Mae and Freddie Mac - your credit score is an input for the math that's used to make your rate. Twenty points - totally doable - a few ways, actually.
Bring your bills current - as best you can, reduce your outstanding balances on credit cards and charge accounts, dispute and remove mistakes and erroneous reporting, raise your available credit limits in some cases - there's a lot you can do to earn twenty extra points. You can use an online credit building service such as this one [points up] does a lot of work in 30 days. You have so many options and - regardless of whether rates are going up - these are steps you should take anyway. Raising your credit score pays off on more than just your mortgage.
Tip 7: Use HomeReady or Home Possible
Strategy seven: Use HomeReady or HomePossible, if they're available to you. HomeReady and Home Possible are mortgage programs. They're similar- and they're backed by Fannie Mae and Freddie Mac, respectively. HomeReady and Home Possible take the regular 30-year fixed rate mortgage and make them better - more affordable - for first-time buyers of homes. Both programs - if you're eligible - hand out easier mortgage approvals, lower interest rates, and fewer loan costs for buyers. You can also reduce your minimum down payment to just three percent with HomeReady and HomePossible which means if you can use - try to use it.
We've got a lot of information on HomeReady and Home Possible on the Homebuyer. com website. I'm putting a link in the description. Check it out and if you're eligible, don't miss out. These two programs are some of the best things going in homeownership and home affordability for renters and first-time buyers.
Tip 8: Use a First-Time Home Buyer Program
Strategy eight: Use a first-time home buyer mortgage program. Another way to find relief from rising mortgage rates - when mortgage rates are high - is to look at municipal, state, and national first-time buyer programs that offer loans at better terms, or that give cash grants to use for closing costs which you can use to buy down your rate - as discount points. Some even give straight-up incentives which may include an interest rate reduction or a temporary mortgage rate buydowns. We've highlighted some of the programs Congress is discussing as part of this video here [point up]. One of the most well-known programs - the $15,000 first-time home buyer tax credit - doesn't reduce your mortgage rate because it credits-back your income tax, but the $25,000 Downpayment Toward Equity Act can lower your rate.
The Downpayment to Equity Act is a cash grant buyers can use to pay for anything payable at closing on a home which includes down payment - as in the name - and also costs, which can include mortgage discount points. Check the post for up-to-date information and also look at state and local programs through the Housing and Urban Development website. Navigate by state, drill down into county, and then look for your city. Call the sponsoring entities - make sure the program's still active and still funding loans. It can be a little bit of work and also be worth it.
Tip 9: Raise Your Down Payment To The Next 5 Percent
Strategy nine: Increase your down payment to the next 5 percent. This strategy for getting a lower mortgage rate - for dealing with rising interest rates - is limited to buyers who use conventional mortgage financing - mortgages backed by Fannie Mae and Freddie Mac - because when you do conventional mortgage financing, every five percent increment you add to your down payment results in a lower mortgage rate - because of how conventional mortgage rates get made. Not with FHA, not with VA, or USDA or jumbo - this is for conventional loans only - because with conventional loans, mortgage rates get made differently. There's a base rate - a floor - a starting point for the calculation - and then adjustments to rates get applied - based on risk. One of them we talked about already - credit scores.
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Every twenty-point difference in your credit score changes your mortgage interest rate. Another risk-adjustment is based on down payment - not in dollar terms, though - on a percentage basis. If you're doing a conventional mortgage loan and you're putting down 3 percent, you can get a lower rate by putting down 5 percent. And you can lower your rate more by putting down 10 percent.
And again by 15. And with every five percent increment - until you get to 40 percent down - your mortgage rate lowers slightly. There are some caveats. First, this only works for 30-year loans - it doesn't work with 15s. . Second, if your credit score is average or below average, the discounts don't start until you put twenty percent down on your home or more, and that's not something most buyers do. Third, and this is worth knowing,if you're using HomeReady and Home Possible - you're already getting a discounted rate. So this strategy is a stretch - but it's there.
Tip 10: Get Multiple Rate Quotes
Lastly, strategy ten: Get multiple mortgage rate quotes. Every home buyer - once they're under contract - should get at least two mortgage rate quotes to compare against each other. Three is better. Four is optimal. Any more than that, shopping for rates becomes your full-time job - and that's no good.
The best reason to comparison shop, by the way, may not be for the reason you think because it is not to pit lenders against each other to see who discounts more. Like when you're buying a car. Lenders don't work like that - because it's discriminatory. They can't give one rate to one customer and another rate - for the same loan - to another customer. That would be unfair - and violates the law.
No, the reason why you comparison shop your mortgage is because lenders are sometimes in and sometimes out of market. Their pricing fluctuates - daily. Sometimes, a mortgage company wants a lot of 30-year loans on their books - so they make their rates really low - to grab up market share for those types of loan. Two weeks later, they may have filled a quota - or changed their plans - so they price their mortgages up. As a buyer, you don't know where a lender is on that pricing scale.
And you won't know - unless you talk to more than one lender. Freddie Mac did a great study on this. They found that home buyers who do talk to two or more lenders - they save $1500 on average - just for making a second call. So do that. Get another quote.
Non-Optimal Strategy 1: Shorter Loan Term
Alright. So that's 10 great ways to buy a house when mortgage rates are high. Now, let's use the tail end of this piece to talk about what you shouldn't do when rates are up - about the bad advice - because YouTubers, and TikTok, and influencer types - they're handing out personal finance tips but pretty much none of them have a history or background working in mortgage. And some of their advice is straight-up harmful or wrong. Like the strategy to get a lower mortgage rate by shortening up your loan term.
Instead of doing a 30-year fixed-rate mortgage, doing a 15-year instead - because interest rates are half-a-point better - or more. Except that when you do that - when you take the shorter-term loan - the payment is higher. Because you're taking a loan that used to be paid back over 30 years and now you're compressing it into fifteen. And that's not what you're trying to do. The point is to get a lower payment - not a higher one.
Non-Optimal Strategy 2: Floating Mortgage Rates
Or they'll tell you to float your mortgage rate - which means to not lock your mortgage rate - after you've found a home - and set a date for your closing. Most people at this point - when they're under contract - they get a mortgage rate from their lender and then they lock it in. They get that commitment which says - in writing - that the lender will honor this specific rate for this specific property for this number of days. Your rate lock is your contract - with you and your lender signed. Floating is the opposite of a rate lock. There's no commitment. And when you float, you're subject to changes in the market.
Whatever it wants to do. And, maybe you get lucky and rates come down while you're floating your rate. But that's just hope and hope is not a strategy. And things can go sideways for you - quickly - which puts your home at risk. So, let's not think of floating mortgage rates as a sensible way forward. When you find a home, get locked. Make the safe choice. Alright! So before we sign off - one last thing, please… If you learned something