By: Reese Morgani, Altamont Property Group
We have all heard there is potential for an interest rate increase coming in the first quarter of 2022. For those of us in the market to buy, this can give us pause. There are ways, however, to prepare for this rate increase and make sure you are ahead of the curve. With limited inventory, being prepared and properly informed is especially important to take into consideration now as a “right now” purchase option is not always a possibility.
Take a Look at Your Credit
The first step in being prepared to deal with the interest rate increase is to make your lending outlook better. Connecting with a lender early to know your credit score and financial loan estimates will help you in many ways. It could take two or three months to change your credit rating and make some changes, which could offset the interest rate hike should there be one. I have seen buyers able to bring their credit scores up 30 to 50 points just by speaking with a lender and getting some good advice as to what to pay off.
Someone with a high 600s or high 700s credit rating can make adjustments to their financial outlook and over only the next 60 to 90 days this could raise their credit score. At first it may seem that this is a small adjustment and not worthy of looking into, but that is not the case. Most times credit ratings hover just below the threshold of a better credit bracket and paying down a credit card or paying off a car loan can have a major impact. Your credit bracket is how your lending interest rate is largely determined. So in doing this, you will have an interest rate reduction on your lending and this could mean all the difference in offsetting the interest rate hike to come.
Save Now to Pay Down Your Rate
Another way to be prepared if you do not have large credit debts to pay off is to start saving to be able to pay down your interest rate. Buying points on your loan interest rate allows you to pay money upfront to the lender and lower your interest rate. A half of a percent can go a long way over the life of a loan. Especially if we are about to see a half to a full percent increase, this can be another way to offset your lending totals and keep your payments down.
One way to make this easier on the budget is to ask for a seller credit in your offer. Although I will admit in this market this is not always looked upon favorably in a multiple offer situation, you will not always encounter a multiple offer situation. New construction is an ideal time when this particular scenario is a possibility as it allows the builder to show a higher selling price, which helps them at the same time that a credit back to you helps you. Be on the lookout for these win win situations as they will be important should interest rates rise in the months to come.
The best advice I can give is to be prepared and do not leave lending preparation to the last minute. Preparedness will typically come best from working with a lender you can speak to in person who can advise you on how to better your situation to raise your credit ranking. Although online, quick and easy online lenders can get you a letter that will make you feel confident you can get a loan, they do not always advise you fully like speaking with a lender in person who will assess your overall buying potential and advise you. This is very helpful to prepare you for what is potentially to come.
I suggest getting in touch now with an in-person lender who can assist you in bettering your financial portfolio so you can be prepared for your buying future. Loan officers deal with unusual financial scenarios regularly and being fully qualified can have major payoffs in the end.
Being prepared now before a potential interest rate increase will set you up for real estate success. You can also learn more about why it’s often good to buy and not rent in a high interest rate, low inventory market in the second of this two-part series on buying in a high interest rate market.
Contact Reese Morgani and Altamont Property Group
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