Mortgage interest rates remain high. In February 2023, the average rate for a 30-year fixed mortgage topped 6.0%, which is steep compared to rates that were around 2% in 2020. This has given homebuyers pause, unsure of whether to pursue their buying plans.
However, it’s still possible to make the most out of the situation and emerge with your finances still in good shape.
As you shop homes for sale in Morris County, NJ, here are five tips that will allow you to handle rising rates effectively.
- IMPROVE YOUR FINANCIAL HEALTH
- Sticking to a monthly budget to maximize savings
- Paying off monthly bills on time to keep your credit score high
- Generating extra income through a side job or business
- MAKE A SIZEABLE DOWN PAYMENT
- APPLY FOR A SHORTER LOAN TERM
- CHOOSE AN ADJUSTABLE-RATE MORTGAGE
- CONSIDER ALTERNATIVE AND AFFORDABLE HOUSING
Your financial standing plays a huge role in the interest rate lenders will offer you. Expect them to factor in your income, credit score, total debts, and more. By improving your financial health, you boost your chances of getting a lower rate.
Some of the steps you can take to strengthen your economic situation include:
If you find it difficult to manage your finances on your own, you can talk to a financial adviser to develop a savings plan you can work with.
It makes sense to save up for the biggest down payment you can possibly make. The bigger the down payment, the less risky you’ll appear to lenders. This also means you’ll have more equity on your home, and a lower loan-to-value (LTV) ratio may come with the added benefit of reduced interest rates and fewer fees.
Shorter-term mortgages, such as 15 or 20 years, typically come with lower interest rates than 30-year loans. By selecting shorter-term loans, you can get lower rates from between 0.5 to 1.17 percentage points, which can spell significant savings by the end of the loan term. Bear in mind that you’ll be paying higher installments each month, so calculate your expenses carefully to ensure you can meet the payments with your income.
Adjustable-rate mortgages (ARM or floating or flexible interest rate mortgages) are loans with rates that can rise or drop according to the dictates of the market. ARM interest rates are generally lower than fixed-rate mortgages. In addition, they often come with fixed “teaser” rates for the first three to 10 years, depending on the length of the loan.
The downside is that once the teaser rate period expires, your interest can increase significantly along with your monthly payments. Choose ARM if you plan to live in your home for a short period of time or if you’re expecting a boost in income that will help you manage the payments should they increase in the future.
Even if home prices may seem out of reach, some markets and communities are still relatively affordable. So explore neighborhoods you may have not previously considered – they may be the key to new home buying opportunities. You can also consider other residential options such as townhomes, condos, manufactured homes, modular homes, and multi-family homes. They may be more affordable than the single-family home you’re after.
Let me, Frank DeZao, help you navigate the complexities of the home buying process. With my years of expertise, I can make your home purchase proceed as stress-free as possible, while ensuring you get the most out of your investment. Call me, Frank DeZao, at 201.953.9376 or contact me here so we can shop for homes for sale in Morris County, NJ together.