Our top strategies for lowering your interest rate this buying season:
Rates are still the hottest topic of discussion this season. As I've mentioned in the past, even though rates are higher than the last few years there's still a huge window of opportunity for buyers looking to purchase a home this year because they have less competition and an increased chance of getting the seller to help pay some of their closing costs and pre paids. That being said, it's still important to know that you have options for getting your interest rate down if you are purchasing a home this year.
1. The 2-1 Buy Down: This a type of mortgage financing strategy that allows a borrower to lower their monthly payments for the first few years of their loan term. It works by reducing the interest rate on the loan for the first two years by 2 percentage points, and then by 1 percentage point for the following one to three years. After this initial period, the interest rate and monthly payment reverts to the original rate for the remaining term of the loan.
This strategy is often used by homebuyers who want to reduce their monthly payments during the early years of their mortgage, when their cash flow may be tighter due to other expenses like home updates or furnishing their new home. By paying a lower interest rate for the first few years, they can reduce their monthly payments, sometimes by a few hundred dollars, which can help them save more up front.
It's important to note that while a 2-1 buy down can help reduce monthly payments in the short term, buyers should be comfortable paying the full monthly payment after their 2-1 buy down term is over. If rates drop before then, buyers can typically refinance their home loan with the goal of a permanent reduced monthly payment.
2. Pay Points for a Rate Buy Down: Paying points upfront to lower your interest rate is a popular strategy for today's home buyers. A point is equal to 1% of the loan amount, and paying one point typically lowers the interest rate by 0.25%, this is usually referred to as “buying your rate down." In today's market we are often able to ask the seller to pay money toward the buyers closing costs and these funds can be used to pay points for a rate buy down. It's important to do the math with your lender and make sure paying points makes sense for your situation.
3. Shop Around for the Best Lender: Don't settle for the first offer you receive. Get quotes from multiple lenders and compare their interest rates, incentives (such as a paid appraisal or funds toward closing costs) and fees they are offering. Be careful not to shop too many lenders as you don't want your credit pulled several times. We usually suggest comparing two lenders. If you have a favorite lender or someone you are loyal to you can ask them to match the competing lenders offer. Our team has several preferred lenders that offer competitive rates and incentives.
Latest rates as of April 2023:
5.6% for a VA loan, 5.9% for a conventional loan and 6.4% for an FHA loan. *Rates change daily and are subject to each individual lender/bank and borrowers credit profile. If you need a trusted lender recommendation please don't hesitate to ask.
