Buying a house is always a complicated process: finding a floor plan you like; locating a neighborhood where you fit in; budgeting for all the expenses; and packing, unpacking, and moving. All those stressors are amplified when interest rates climb as well. But the home purchasing process can still happen even when interest rates start to increase. There are some strategies that can help with the process.
One tip is to consider an adjustable-rate loan. An adjustable-rate mortgage is a home loan with an interest rate that can change over time, monthly payments can go up or down. Typically, the first rate/payment will be less than what a fixed rate payment would be. An adjustable rate is something to consider if you are thinking that you might own that property for just a few years.
Another strategy is to put more money down. A larger down payment will mean a smaller loan balance and will give you a cushion of home equity. More lenders will find your loan application attractive and in turn will likely offer the loan at a lower rate.
Purchasing mortgage points or discount points can assist with lowering monthly payments. Mortgage points are the fees a borrower pays a mortgage lender to reduce the interest rate on the loan. The points will reduce the overall monthly payments, but it does require more upfront money. It can also be referred to as buying down the rate.
There are loans that might be assumable from the sellers. Check into that. Shop around for the best lender. There are online lenders and the traditional brick and mortar bank or credit union. Some banks might offer a better home loan program if you move your banking to their institution. They are rewarding their customers through a loyalty program. Analyze lenders’ fees and costs.
Closing fees and costs can vary by thousands of dollars from lender to lender. Government back loans, FHA or VA, typically have lower fees.
Consider a shorter term loan, don’t focus on a 30 year period, think about 15 years. Fifteen year mortgages will typically have a lower rate but will have a larger monthly payment, but you will own your property in ½ the time. And, some advantages to not overlook, prices tend to be lower when interests rates climb. Sellers might be willing to negotiate on the price if there are fewer qualified buyers.
Houses are typically on the market a little longer, so it does give you time to “look around” and think about your purchase.
A point to not forget is that you can re-finance at some point in the future. Also, with a larger down payment, the need for private mortgage insurance might be eliminated. You will have a more manageable monthly payment.
This process is even more stressful if you are looking to purchase a home while you are separated and going through a divorce. Some states may require the court’s permission to purchase a home during the separation process. There is concern that funds being used might belong to the other spouse. There is also a concern that the soon-to-be former spouse could have a claim to the property if it is purchased while the parties are still married. Many lenders might require a free trader agreement.
A free trader agreement allows a spouse to purchase property after the date of separation but before the divorce is granted. The free trader agreement will state that each spouse can purchase or sell property without the other spouse needing to be named/listed on the required documents. With a free trader, each spouse can freely purchase real estate without the other spouse’s permission. In North Carolina, as is the case in most states, there are statutes that must be followed to make sure the document is accurate and valid.
Also, one needs to be in good financial condition if there is a plan to purchase another home while one might still be obligated on the loan/mortgage on the marital home. A lender will be concerned if a borrower has an obligation on 2 different mortgages. The divorce settlement might require that the former family home be sold, and proceeds divided, or that the spouse retaining the home might need to re-finance. So, coordination of other real estate transactions might be necessitated, with timing being closely monitored.
Buying your home is still a possibility when interest rates rise, you just might need to do a little more homework and think outside of the box. Good luck!
Lisa has practiced law since 1987 but has also been heavily involved in legal education and writing. As a teacher at Central Carolina Community College, she has been nominated twice for Instructor of the Year. She has taught paralegal and criminal justice courses, authored legal study guides and articles for national publications, edited numerous legal studies textbooks, and consulted with legal authors on several writing and educational projects. She is also a Board member and Committee Chair for the North Carolina State Bar Board of Paralegal Certification.
