Before they buy a house, a lot of people hope that mortgage rates will go down. But is that really going to happen? The most recent predictions from experts say that rates will go down, but not as much as many people want.
The good news? There are still ways to make buying a home more affordable, even if prices don’t go down a lot.
How Much Will Rates Drop?
A few months ago, experts said that by the end of the year, mortgage rates might drop below 6%. But new predictions say that might not happen after all.
Mortgage rates are still expected to go down a bit later this year, but Fannie Mae, the Mortgage Bankers Association (MBA), and Wells Fargo now say that they will stay around 6.5% by the end of the year.
That means you might have to wait a while longer if you want to buy a house but are waiting for mortgage rates to go down a lot. Not to mention that if you need to move because of a new job, a baby, or a marriage, you might not be able to wait that long.
Creative Financing Options in Today’s Market
Because rates aren’t expected to go down as much as was first thought, you might want to look into other ways to get the money you need to buy a home sooner rather than later. Here are three ideas you should talk to your lender about to see if any of them work for you:
1. Mortgage Buydowns
You can pay a fee up front to lower your mortgage rate for a certain amount of time with a mortgage buydown. This can help a lot if you need or want a lower monthly payment at the beginning. In fact, 27% of agents say that more and more first-time buyers are asking sellers for price cuts so they can buy a home right now.
2. Adjustable-Rate Mortgages
Most of the time, an adjustable-rate mortgage (ARM) has a lower initial rate than a traditional 30-year fixed mortgage. This makes them a good choice, especially if you think rates will go down in the next few years or want to refinance later.
If you remember the housing crash, you should know that ARMs today aren’t as risky as they were back then. Lance Lambert, co-founder of ResiClub, says the following to make his point clear:
ARM products today are not the same as many of the products that came out in the middle of the 2000s.” Before 2008, lenders would often give ARMs to people who could afford the lower interest rates at first. And sometimes, like with Ninja loans, they didn’t even check that. Today, people who want to borrow money with an adjustable rate must be able to make a higher monthly payment as well as the lower initial payment.
In simple terms, banks used to lend money to people without checking to see if they could pay it back. Lenders now check income, assets, and jobs, which lowers the risks that come with ARMs compared to the past.
3. Assumable Mortgages
With an assumable mortgage, you can take over the seller’s current loan, which may have a lower interest rate. More than 11 million homes can use this option, according to U.S. News, so it’s something you should look into if you need or want a better rate.
Bottom Line
Waiting for mortgage rates to drop a lot might not be the best idea. Instead, buydowns, adjustable rate mortgages (ARMs), or mortgages that can be assumed could make homeownership more affordable right now. You can talk to a local lender to find out what will work for you.