With mortgage rates hovering around 7%, many buyers are focused on finding ways to make homeownership more affordable. While rates remain higher than many buyers became accustomed to over the last decade, there are several strategies that can help reduce borrowing costs and improve affordability.
Negotiate With Your Lender
Many buyers negotiate the purchase price of a home but never think to negotiate their loan terms. Mortgage lenders may have flexibility when it comes to interest rates, lender fees, and closing costs. If you receive a better offer from another lender, sharing that information may encourage your preferred lender to improve their terms and earn your business.
Compare Multiple Loan Offers
One of the biggest mistakes buyers make is accepting the first mortgage quote they receive. Every lender uses different guidelines and pricing models, which can result in significantly different rates and fees for the same borrower.
Obtaining quotes from several lenders, including mortgage brokers, credit unions, regional banks, and national lenders, allows buyers to compare rates, closing costs, and loan terms. The savings over the life of a loan can be substantial.
Ask About Relationship Discounts
If you already have a checking account, savings account, investment account, or other financial relationship with a lender, you may qualify for discounts. Some lenders offer reduced fees, lower closing costs, or special pricing incentives to existing customers. It never hurts to ask what programs may be available.
Consider Buying Mortgage Points
Mortgage points allow buyers to pay an upfront fee in exchange for a lower interest rate. Although this increases closing costs, it can significantly reduce monthly mortgage payments and long term interest expenses.
This strategy often works best for buyers who expect to remain in the home for several years. Before purchasing points, it is important to calculate how long it will take for the monthly savings to offset the upfront cost.
Understand Rate Lock and Float Down Options
Mortgage rates can change during the closing process. Some lenders offer float down programs that allow borrowers to take advantage of lower rates if market conditions improve after the loan is locked.
Understanding these policies before choosing a lender can help buyers avoid paying more than necessary if rates move in their favor before closing.
Explore Different Loan Structures
The traditional 30 year fixed rate mortgage remains the most popular option, but it is not the only choice. Adjustable rate mortgages and other loan programs may offer lower initial payments, which can be attractive for some buyers.
Every loan product has advantages and risks, so buyers should carefully review their options and choose the loan structure that best fits their financial goals and future plans.
Focus on the Home, Not Just the Rate
Many real estate professionals have adopted the phrase, "Marry the house, date the rate." The concept is simple. The right home may only come along once, but mortgage rates change constantly.
While nobody can predict exactly where rates will go next, buyers who find the right home and can comfortably afford the payment may have opportunities to refinance in the future if rates decline. Waiting for the perfect interest rate could mean missing out on the perfect home.
The current market certainly presents affordability challenges, but buyers who understand their financing options and take the time to shop strategically can often save thousands of dollars over the life of their mortgage.
