Today’s rising mortgage rates can put the squeeze on home buyers — there’s no question there…so here are some home buying tips for today’s rate environment.
However, a higher mortgage rate doesn’t mean that buyers should stop looking to purchase. There are things would-be buyers can do to ease the pressure and boost their budget, even as rates rise.
Mortgage expert Ivan Simental broke down some of these strategies in a recent podcast that you can find here…The Mortgage Reports Podcast.
Here’s the link to Aly Yale’s article in The Mortgage Reports and I’ve listed a few things from that piece here…
Focus on You, not the Market
It’s easy to fixate on headlines about rising interest rates, but Simental says it’s more important to focus on your specific financial situation rather than the market at large.
“Try not to follow where interest rates are at so much,” Simental says. “The market is always going to be like this. It’s going to go up and down and it’s going to have good months and bad ones. But the important thing is to stick to your plan.”
“The market is always going to go up and down. But the important thing is to stick to your plan.”
Don’t Put Too Much Stock in Headlines
There are always news stories and headlines about the housing market, but be careful about consuming too much. These often highlight the most extreme happenings in the market and are indicative of more general trends — not necessarily the rates or experience you’ll see if you buy a home.
“I always tell my clients, ‘Look, If you are in a good place to buy a house, then right now is a good time to buy a house,’” Simental says.
“If you’re not, then it is not a good time to buy a house — and that is why it is so important to get with an individual who’s really going to look out for you, your finances, and your specific situation… Speak with a professional who’s doing this day in and day out.”
Know Your Finances
To qualify for a mortgage at today’s higher rates — and make sure you get a loan you can afford both now and down the line — having a good handle on your finances is critical.
Simental stressed the importance of looking at your financial stability over the long term. As he put it, “Are you going to make a job switch or take fewer hours, or are you going to be on maternity leave?” These types of things impact how much home you can afford and qualify for.
Ideally, you want to get to a place where your earnings are consistent and reliable. This will lower the risk you present to lenders and make it easier to qualify for a loan. “Get consistent with your income,” Simental says. “Make sure that you have all of your finances in order and make sure that you are working full-time.”
Your debt-to-income ratio (DTI) is a big factor in your home-buying budget, so pay off debts where you can before you start house hunting.
“I would honestly suggest eliminating all of the smaller payments that you are paying — whether on your credit card or [a] small student loan that you can pay off — because that’s just really going to harm you when you go into the qualifying process for a home,” Simental says.
According to Simental, your DTI will need to be under 45% or 50%, depending on the loan program. “That includes your mortgage payment. And if you have car payments, student loans, credit cards, personal loans, that all gets taken into consideration and gets looked at, and it can hurt your application,” Simental says. “Make sure to take care of these debts.”
Improve Your Credit Score
Your credit impacts both your ability to qualify for a mortgage and the interest rate you’re quoted.
“Take a look at your credit score,” Simental says. “If your credit score is not where it needs to be or not where it should be, make sure that you come up with an action plan to get it to the best possible score you can. The higher the credit score, the better the interest rate and the better loan program options that you will have.”
If your score is on the lower end, a good loan officer will help you build a roadmap to improving your credit.
“Even if you’re not ready to buy right now, connect with a loan officer and let them know ‘Hey, I want to run my credit. I want to see where it’s at. I want to see if there is a room for improvement,’” Simental says. Ask them, “‘What do I need to do so that I can have the best possible credit score?’”
Whether you’re ready now or just preparing to buy a house, reach out to me, as it would be my pleasure to work with you to get started!
I’d be more than happy to take an in-depth look at your income, credit, and current mortgage rates, then tell you what you’re able to afford. If you’re not in an ideal position to buy right now, I can help you develop a strategy to get you there!