If you’re trying to buy a home, affordability is probably one of your biggest concerns. And with mortgage rates starting to tick up again, it’s understandable to wonder if you should pause your plans and wait for rates to come back down.
For now, though, rates are moving in the opposite direction. Mortgage News Daily data shows that mortgage rates have been rising this year, as you can see in the graph below:
So, why is that happening? There are actually a few different reasons.
Mortgage rates can be influenced by what’s happening overseas, economic data, inflation, oil prices, and even decisions made by the Federal Reserve. As Danielle Hale, Chief Economist at Realtor.com, explains:
““The pressure on mortgage rates was here even before the Fed rate hike, and it doesn’t show signs of relenting. . .”
”
That’s probably not what you wanted to hear. But it doesn’t mean you’re completely out of options. You can’t control where mortgage rates go next, but you can control several factors that can affect the rate you actually qualify for.
So, what should you focus on? Let’s take a look.
Work on Your Credit Score
Your credit score can have a big impact on the mortgage rate you qualify for. Even a small improvement could make a noticeable difference in your monthly payment. As Freddie Mac explains:
““Generally, the higher your credit score the more options will be available to you, including better loan terms and a lower interest rate.”
”
So, do what you can to keep your credit score in good shape. If you’re not sure where your score stands or what you can do to improve it, talk with a trusted loan officer.
Explore Your Loan Options
The type of loan you choose and how long you take to pay it off can both affect your rate. Conventional, FHA, VA, and USDA loans each have different requirements and rates. Your loan term, whether it’s 15, 20, or 30 years, also affects your monthly payment and how much interest you’ll pay over time. The loan structure matters too. A fixed rate stays the same, while an adjustable rate typically starts lower but can change later. Bankrate explains it this way:
““. . . rates on fixed-rate loans are typically higher than introductory rates on adjustable-rate loans because the fixed-rate lender takes on the risk that rates could increase during the loan’s term. Likewise, government-backed FHA, VA and USDA loans sometimes have lower rates because they have a government guarantee or insurance that cuts the lender’s risk.”
”
It’s worth talking with a lender and exploring your options to find what fits your situation. Consider your goals, the rate you may qualify for, and any potential tradeoffs before deciding. You can also compare options from multiple lenders to see what’s available.
Consider a Newly Built Home
Another way to potentially get a lower rate is by considering the type of home you buy. Many builders are offering mortgage rate buydowns to help lower monthly payments. It’s one of the ways they’re attracting buyers and moving their homes.
According to Realtor.com, buyers who purchased newly built homes got a lower average mortgage rate last quarter than those who bought existing homes, as the graph below shows:
If getting a lower rate is your goal, ask your agent about new construction communities nearby that may be offering incentives like this.
Bottom Line
You can’t control where mortgage rates go, but you can control your credit, loan options, and the type of home you choose. A trusted lender can help you find the best rate you qualify for. When you’re ready to make a move that fits your budget, let’s connect.
