Many believe that buying a home in 2023 can feel like a daunting process if you need a mortgage.
With high inflation and the Fed’s monetary policies, borrowing costs have reached decade highs. However, despite high inflation and other not so promising economic indicators, it is still possible to secure an affordable home mortgage loan.
SHOULD YOU EXPECT
TO PAY FOR YOUR MORTGAGE?
WHAT TO KNOW ABOUT MORTGAGE RATES TODAY: THE ECONOMY & THE THE REAL ESTATE MARKET
At the last Federal Reserve meeting in June, Fed policymakers chose to hold off on another rate hike. Thus, the interest rates remained unchanged. With current Q3 interest rates, you can expect to pay around 5.6%-6.6% for a 30-year fixed mortgage. Though the 2023 average mortgage rate is higher than it was in 2020, there are ways to navigate high interest rates and turn the situation in your favor.
High inflation has led the Federal Reserve to hike rates, which has made interest rates higher than they’ve been in recent years. And, as the Fed struggles to get a grip on inflation, it is likely that they may implement additional hike rates later this year.
But, despite these higher interest rates, there is some good news about securing a mortgage and purchasing a home in this market.
The real estate market is less competitive
The growth of interest rates has created a sharp downturn in the real estate market. When interest rates were close to 0, the real estate market was in an absolute frenzy. Homebuyers experienced historic bidding wars and massive competition, preventing many eager buyers from making a purchase.
The lower interest rates heated up the real estate market, which shot home prices up to record highs. Though homebuyers were able to benefit from low interest rates, the purchase price was more expensive than it is now. Thanks to interest rate hikes, home prices have leveled off from their pandemic highs. Moreover, home prices are expected to fall another 10-15% this year. Depending on your situation, it may be easier to purchase a home in this market.
It’s shifting to a
When it’s a buyers market, you have a better chance at negotiating the price and taking your time to find the perfect home. You can negotiate with the seller to pay closing costs and you won’t have to deal with the stress of bidding wars. When it’s a buyer’s market, there is a lot of inventory and reduced demand — giving you the best chance at making the perfect real estate purchase.
Lower property &
real estate taxes
A benefit of purchasing in a slower market, at a lower price, is that you get to pay lower property taxes on your real estate purchase. However, remember that property and real estate taxes largely depend on the state and city of your home.
Possibility for REFI (refinance home loan) down the road
If you are able to secure a mortgage in 2023, there is a chance to refinance the home loan later on when interest rates go down. That way you can benefit from the lower home prices while also potentially locking in a lower rate later on.
So, yes, despite higher Federal
Funds rates, there are still
ways to secure a mortgage in 2023
We at Loan Consulting Pro are experts in the home loan and mortgage industry. We work with professionals in all fields to help you navigate and secure the best loan for your situation and get the best current home interest rates.
While it may seem a bit intimidating, there are numerous ways to secure lower home mortgage rates in 2023.
Increase your home down payment
This may take some time and saving up. However, if you are able to put down a greater down payment, you can get a smaller mortgage and thus, pay less in interest over time. Additionally, if you make a larger down payment you can potentially rid yourself of the burden of private mortgage insurance.
Consider first time home buyer loans
Though this will only apply if you are a first time buyer, there are several options available for loan assistance. Consider applying for government-backed FHA loans that offer greater flexibility and reduced house mortgage rates. Be sure to research the first time buyer mortgage eligibility requirements to see if you can qualify.
Increase your credit score
Though this can take time, it may be in your interest to work on your credit score. These are steps you can take while you wait for interest rates to go down.
– Pay back any outstanding bills/credit card balances
If you have a bad memory when it comes to paying off bills, set a reminder on your phone.
– Pay off any outstanding debts
The debts that have a high interest are most important to pay off!
– Use a credit score report to stay updated on your credit score
Make sure there are no fraudulent transactions, mistakes or errors in the report.
– Don’t open new credit card accounts (or close old ones)
Closing accounts can shorten your credit history, while opening new ones can temporarily lower your credit score.
– Ask a family member with good credit to become an authorized user
Depending on their credit history and credit utilization, becoming an authorized user can potentially improve your credit score!
Use a loan calculator for calculating home loan burden
When applying for a loan, it is crucial to calculate whether or not you can afford the financial burden at this time. A loan calculator can help you estimate whether you can pay off the interest over time.
Research different lenders to see what the best home loan rates are at this time. Compare a range of offers to find a suitable option. Consider the repayment terms, interest rates and closing costs that different lenders can offer you.
Consider using mortgage points and lender credits
You can use mortgage points to get a reduced interest rate on your mortgage. This means that you may end up paying more up front, but getting a better deal in the long term. You can also use lender credits to reduce your closing costs.
Lock in the rate
If you get offered a good rate, be sure to lock it in! Sometimes there are additional fees required to lock in the rate, but it can be a worthwhile investment to secure a lower interest rate.
WHAT TYPES OF MORTGAGE LOANS ARE OUT THERE?
WHICH HAVE THE LOWEST INTEREST RATES?
Not all mortgages are built the same!
In addition to subsidized loans like FHA and VA loans,
there are a range of loan types that can allow you
to secure better interest rates.
Fixed rate vs. adjustable rate mortgage (ARM) loan rates
When it comes to home mortgage interest rates, you need to decide whether a fixed or adjustable rate is optimal for your situation. With a fixed-rate mortgage, you pay the same rate for the entire term of the loan (usually 15 or 30 years). With an adjustable-rate mortgage, you pay an interest rate that can go up or down. In general, a fixed-rate mortgage can be the cheaper and less riskier option in the long term. In fact, most financial advisors will generally recommend a fixed-rate loan as the payments are predictable. However, if interest rates are high, some prefer an adjustable rate loan as the initial rates are lower.
An adjustable rate loan can be your best bet if you are not planning to keep the property for a long time. ARMs are an especially attractive option if you sell the home or refinance the loan before the term is reset. Moreover, ARMs no longer charge prepayment penalties which means that borrowers can refinance their loan into a fixed-term mortgage if they need to.
That being said, you should consult a loan advisor before settling on an ARM as there are many risks involved.
Loans for home construction
In addition to a typical home mortgage, there are loans available to build or re-construct homes. If you have already purchased land you can take out a loan for home construction. This can be a personal loan, a line of credit or a construction loan. Often these types of loans are short term loans with higher interest rates than a typical mortgage loan interest rate.
Jumbo or Conventional Loans
A conventional loan is one that is not subsidized by the government and is more difficult to qualify for. It will meet the requirements of Freddie Mac or Fannie Mac and require a higher credit score and a low DTI ratio. A jumbo loan allows you to take out more money than is typically available with a conventional loan.
Interest Only Loan
An interest only loan is a kind of loan where you only pay interest on the loan and not towards the principal balance. Your monthly payments will be lower, however, after the first 5 or 10 years, you will have to pay back the principal and pay the current interest rate (which may be higher than before).
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