5 smart mortgage moves to make this May
Are you hoping to buy a home this month? Unfortunately, mortgage rates are still elevated. The pandemic brought record-low rates in the 3% range, but runaway inflation and the Fed's corrective rate hikes have left them closer to 7%.
"Rising interest rates mean higher monthly mortgage payments for buyers. This limits how much money they can borrow, affecting both first-time buyers and those facing increased mortgage costs," says Dana Hendrix, senior vice president of finance at DSLD Mortgage.
While the Fed has predicted rate cuts this year, they aren't expected to provide much relief. "Federal Reserve officials are hinting at possible rate cuts. However, inflation is still considerably higher than the 2% "sweet spot," so it's unlikely cuts will be actioned until late 2024," says Hendrix. "I don't anticipate that mortgage rates will dip below 6.4%."
Although mortgage rates are looking to remain elevated for the foreseeable future, you don't necessarily need to wait to buy a home. Here's how experts say you can make the most of the current environment.
Learn more about today's top mortgage rates and get preapproved now.
5 smart mortgage moves to make this May
If you're in the market to buy a home, these five steps can help ensure you get the best mortgage loan (and mortgage rate) this month.
Get your credit in good shape
Mortgage rates are largely based on your credit score so a good place to start is getting your credit in the best shape possible.
"Improving your credit score significantly boosts your chances of securing the best mortgage loan and rate. If you can, pay over the minimum monthly payments for credit cards, and always pay loans and credit cards when they're due," says Hendrix.
Hendrix also recommended checking your credit scores and reviewing your credit reports for errors. You can get free copies of your credit reports from the official Annual Credit Report website. Further, free credit scores are available from many banks, credit card companies and financial service companies.
Find out the top mortgage loan options available to you here.
Make a larger down payment
Your down payment size will also impact your interest rate. A larger down payment reduces the loan amount, which reduces the risk for the lender.
"Aiming for a down payment of 20% increases your chances of securing a lower interest rate," says Hendrix.
If you need help, look for down payment assistance programs in your state and local area.
Shop around for the best rate
Rates and terms will also vary between lenders.
"To ensure you secure the best rate, obtain loan estimates from at least three different lenders and compare them. Since mortgage rates vary daily, you should request these estimates from each lender on the same day for an accurate rate comparison," says Hendrix.
If you want help shopping around, you can also consider consulting a mortgage broker.
"Engaging a trusted mortgage broker can provide access to a broader range of lending products and expert knowledge on upcoming rate changes," says Cyrus Mohseni, vice president of strategy and growth at First Team Real Estate.
Borrow from your bank
Don't forget to check rates with your bank. It may offer you a better deal due to your account balance and history.
"Many banks like Wells Fargo and Chase, will lower your interest rate if you have significant deposits at their bank in checking, savings, or business accounts," says Lindsey Harn, a real estate agent at Christie's International Real Estate.
Buy points
Another option is to buy mortgage discount points.
"You might also consider finding a lender that will allow you to buy points. That means paying money upfront in order to "buy" a lower interest rate. It can seem counter-intuitive, however, doing this can actually save you money over the life of the loan," says Omer Reiner, realtor and president of Florida Cash Home Buyers, LLC.
The bottom line
"Inventory is increasing, but still well below pre-pandemic levels so understanding your buying power and having pre-approval in hand is important to be competitive. Working with a mortgage professional early on in the homebuying process can help buyers ensure they are prepared and are getting the best mortgage product and rate for their needs," says Fred Bolstad, head of retail lending at U.S. Bank.
While it may not be the best time to buy a home as far as rates and inventory go, steps like these can help you get the best deal possible right now. Then, once you have the house you want, you can keep an eye on the market for a good time to refinance.
