Inflation is a hot news topic right now, and if you’re looking to buy a new home in Cheyenne or a nearby area — or if you’re already in the homebuying process — you are likely keeping a close eye on mortgage rates. To combat inflation, the Federal Reserve is rapidly raising interest rates. The rationale behind this move is that when it is very expensive for consumers to borrow money, they will reduce spending, which will then narrow the gap between supply and demand and tame inflation. Mortgage rates have, in turn, spiked off the back of the Fed’s rate increases. According to Freddie Mac, the week of September 15, 2022, the 30-year fixed mortgage rate rose above 6% for the first time since 2008, up from 3.05% at this time last year.
Because the Fed has implemented this strategy, consumers have seen a sharp, unsettling increase in monthly payments for new home loans. However, it’s helpful to keep the history of interest rates in perspective when considering whether to stay in the market. Freddie Mac data reveals that interest rates peaked at their highest point in modern history in 1981, with an annual average of 16.63%. While no buyer is excited about the higher rates as of late, they aren’t anywhere near historic highs. Today, many mortgage experts recommend looking at an initial home mortgage as a bridge to a better rate in the future. Should rates fall in the next year or two, buyers can refinance at a more favorable rate.
Tips to Beat Rising Rates
The good news is there are smart ways to deal with a mortgage rate north of 6% instead of jumping on the panic bandwagon. Here are some strategies to adapt to rising rates.
- Raise your credit score. The better your credit, the lower your mortgage rate will be. Prior to applying for a loan, pull your credit reports from the three major credit bureaus and correct any errors that exist. In addition, pay down credit cards and other debt to raise your credit score.
- Shop around for a loan. Comparing different lenders and loan products will generally result in a better financing deal. Get quotes from at least three lenders, including banks, credit unions, savings and loan associations, and online lenders. Since rates have risen and the buyer pool is smaller, lenders are eager for business and more likely to compete for your loan by offering a lower rate and lower closing costs.
- Opt for a shorter-term loan. Most lenders offer loans with shorter terms than the conventional 30-year fixed-rate mortgage, such as 15 or 20 years, which come with a rate that is lower. While your monthly payment will be higher because of the shorter term, you will pay off the debt faster and with much less in interest over the life of the loan. Use a mortgage loan calculator to compare monthly payments associated with different terms.
- Choose a location with lower property taxes and low HOA dues. To offset the higher monthly payment resulting from a higher interest rate, many buyers are looking at homes located in areas with lower property taxes. Wyoming boasts some of the lowest property taxes in the U.S. — an average property tax rate of just 0.58%, which is the tenth-lowest nationwide! And when you buy a new home in a Cheyenne neighborhood, you will pay as little as $40 per month in HOA fees. In fact, our Saddle Ridge neighborhood has no HOA fee at all!
- Make a larger down payment. When you put more money down, a lender considers you less risky, which may mean a lower interest rate. A larger down payment will result in a lower monthly payment, plus if you put down 20% or more, you will avoid PMI (private mortgage insurance) on a conventional loan.
- Shop for a home that has been on the market a while. You may be able to negotiate a deal — and borrow less — on a home that has been for sale for a few weeks.
Ready to Work With Our Pros to Buy a New Home in Cheyenne?
Rising interest rates can be frustrating for homebuyers, but higher rates are likely here to stay for the foreseeable future. Rather than giving up, it could be better to adopt effective strategies that suit the changing market. Be sure you know what you can afford, work with professionals to understand your options and don’t be afraid to shop around for a lower rate.
If you are in the market for a new home in southeast Wyoming, Gateway Construction, LLC is ready to make the homebuying process seamless for you. Call (307) 632-8950 or contact us online today and work with a team that is committed to client satisfaction. Let’s start building your future today!