Estimated read time: 6-7 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
It seems like decades ago when you could buy a home with a 3.4% mortgage interest rate — and as recently as January 2022, this was the case. Today, however, it's a different story. Bankrate reports that mortgage rates have shot up to over 6% in less than a year.
While that may feel like a gut punch if you're a potential homebuyer, it doesn't necessarily take you out of the running for a new home. Here are just a few ways some homebuyers are staying in the market despite rising interest rates.
Buy down interest rates
This option may seem counterintuitive because it costs more money upfront, but one way to save money long-term is to buy down your interest rate with points.
According to an article for Bankrate, each "point" a borrower buys costs 1% of the total mortgage amount. For example, a $300,000 mortgage would cost $3,000 to buy down one point. Each point lowers the rate by 0.25%. Assuming you plan on staying in your home for the long haul, even a 1% shift can make a big difference over the life of your loan, potentially saving thousands of dollars.
A similar tactic is a temporary buydown. If you can't afford to buy down your rate long-term, your homebuilder, such as Lennar Homes, or seller may offer to reduce your rate temporarily
In an article for NerdWallet, Holden Lewis writes that temporary buydowns reduce the homebuyer's monthly payments in the first year, or sometimes in the first two or three years. That means the homebuyer makes discounted payments for a specified period rather than the full regular monthly mortgage rate.
Adjustable-rate mortgages
Opting for an adjustable-rate mortgage (ARM) is another way some homebuyers are saving money despite the rising interest rates. Unlike traditional fixed mortgages, with an ARM, your rate will vary over time. Rising interest rates have increased the popularity of ARMs. Recent data from the Mortgage Bankers Association found that these types of loans make up about 10% of all mortgage applications.
Of course, there's always a risk when you leave things up to chance.
These loans may be appropriate for people who do not plan on staying in their homes long-term. Though your initial rate may be lower than the current fixed rate, there's always a chance it will go up, so it's important to be prepared for that possibility.
Shorter loan terms
Most people choose a 30-year mortgage loan. But a shorter loan term — 15 or 20 years — may be a good idea if you're looking to pay off your mortgage sooner with as little interest as possible. The trade-off is a much higher monthly payment, but your interest rate will be lower.
Buy in cash
The ideal way to sidestep climbing interest rates is to avoid them altogether by paying cash. Though that might feel like a stretch for the average homebuyer, a surprisingly large number of home purchases are done this way. A recent Redfin report found that cash buyers made up almost a third of all home sales in July 2022.
Rent out part of your property
When paying in cash or shortening your loan term aren't realistic options, there's another way to help pocket a few extra dollars when buying a home: Rent out part of your property. The good news is that the Utah State Legislature in 2022 passed a bill to make it easier for homeowners to rent out basement apartments. Essentially, as long as your "accessory dwelling unit" complies with building and fire codes, you should be good to go.
Go over your options with a mortgage lender
The real estate business can be tricky to navigate solo — even if you've done all your online homework. Speaking with a mortgage lender directly about your unique circumstances and options is a good way of ensuring you make the best financial move when it comes to house hunting.
Since 1954, Lennar Homes has been helping people all across the country find high-quality, affordable homes to call their own — and they want to help you, too. Now, for a limited time, you can receive a 4.875% (4.889% APR) fixed rate or up to $35,000 toward closing costs on select move-in ready homes in the greater Salt Lake City area (see below for details). You must sign a purchase agreement between 1/4/23 and 1/31/23 and close by 2/28/23 when financing through Lennar Mortgage. To learn more about this limited-time offer, contact Lennar Homes today!
Legal disclosure
Statements made above are based on currently available information as noted, current market conditions and should never be relied upon. Market rates are based on market trends and other factors that can cause predictive statements to differ materially. Lennar makes no guarantee of present or future market conditions. Forecasts, projections and other predictive statements should never be relied upon. You should consult your own accounting, legal and tax advisors to evaluate the risks, consequences and suitability of any real estate transaction.
_Offer available on select move-in ready homes in the greater Salt Lake City area if buyer signs and delivers a purchase agreement between 1/4/23 and 1/31/23 and closes and fully funds on or before 2/28/23. Offer valid towards either 1) fixed interest rate or 2) closing costs. Limit one offer per household. Offer may not be combined with any other existing promotion. Offers, incentives and seller contributions are subject to certain terms, conditions and restrictions. Certain incentives could affect the loan amount. Lennar reserves the right to change or withdraw any offer at any time. Offer requires financing through seller's affiliate Lennar Mortgage, but use of Lennar Mortgage is not required to purchase a home (See Affiliated Business Arrangement Disclosure). Lennar Mortgage, LLC, NMLS # 1058. DFI Residential First Mortgage License # UDFI-RFMN2015; DRE Mortgage Entity License #8070821.__
1 Sample APR is based on interest rates and terms available as of 1/4/23 and on a purchase price of $725,000 with 10% down and credit score of 720, factoring in prepaid interest and closing costs. Rates may change or not be available at the time of loan commitment, lock-in or closing. Buyer is subject to qualifications for specific loan terms, occupancy, down payment, credit and underwriting requirements, and/or investor program guidelines. Not an offer to enter into an interest rate or discount point agreement and any such agreement may only be made in writing signed by both the borrower and the lender.
2 At closing, Lennar will provide buyer a credit in an amount not to exceed 35,000 as determined on your Loan Estimate, excluding prepaids.
This is not an offer in states where prior registration is required. Void where prohibited by law. Copyright © 2022 Lennar Corporation and Lennar Mortgage, LLC. All rights reserved. Lennar, the Lennar logo, Lennar Mortgage and the Lennar Mortgage logo, are U.S. registered service marks or service marks of Lennar Corporation and/or its subsidiaries. Seller's Broker: Lennar Homes of Utah, LLC. Date 12/22
