• Matching categories:
  • Money

June 7, 2022

Preparing to buy a home while mortgage rates and real estate prices are on the rise can be nerve-racking. With each uptick in rates, you might wonder if delaying homeownership might be the better option. But trying to time the market by waiting until rates or home prices reverse course could result in missing out on an excellent buying opportunity.

While rates are no longer at 2019 levels, they are still considered historically low. Plus, experts predict prices will continue to increase for homebuyers and renters due to the continued housing demand. Here's why securing a low-interest home loan approval is still a good idea — and how you can improve your chances of success.

Benefits of a Low-Interest Rate Home Loan

Few people want to pay more than necessary for anything, and this is especially true for high-ticket items like homes and vehicles. If you borrow money to pay for one of these purchases, locking in a low interest rate can provide several benefits, including:

  • A smaller monthly housing expense, since it lowers the interest portion of each mortgage payment
  • Lower borrowing costs, as a reduced interest rate decreases the cost of borrowing
  • Increased purchasing power, which might allow you to afford a larger home than you expected

Financing your purchase with a low-interest rate loan can save substantial cash which you can use to achieve other financial goals.

How to Secure a Lower Interest Home Loan

You can take steps to increase the likelihood of a low-interest rate home loan approval. Keep in mind that your buying timeline and income may influence which actions best suit your situation. Ready your finances for homeownership by adding these tasks to your to-do list:

Improve Your Credit Score

Lenders offer the most favorable interest rates and terms to borrowers with a track record of repaying loans as agreed. Your credit report serves as the official record of your payment activity with creditors and service providers. When you apply for a loan, the lender obtains your credit score, which is based on the data in your credit report. They use this information to help determine the loan's rate and terms.

Request a copy of your credit reports from AnnualCreditReport.com. Review them for inaccurate information and dispute any errors. If you're behind on bill payments, bring them current and create a plan to ensure you never miss another payment due date.

HawaiiUSA members with Digital Banking get free, unlimited access to their credit score and credit report with My Credit Score.

Increase Your Down Payment

A larger down payment keeps more money in your bank account over the long term since you won't need to borrow as much to purchase the home. It could also result in a lower interest rate. The more you can bring to the closing table, the less perceived risk the lender takes by approving the loan. Many lenders assume buyers who make down payments of 20% or higher are more invested in the property and less likely to stop making mortgage payments.

Compare Interest Rate Types

Qualified borrowers have several options when selecting a home loan. For instance, they may choose between a fixed-interest rate and an adjustable-rate loan. Fixed-rate loans are assigned an interest rate that stays the same throughout the repayment period. An adjustable rate begins with a set rate for a defined period and changes over time. A fixed rate might be lower than an adjustable rate and vice versa depending on the economic climate.

Consider a Shorter-Term Home Loan

Repayment terms do more than influence the cost of borrowing and the monthly payment amount. Selecting a 15-year versus 30-year mortgage loan term could be one of the simplest ways to save on interest charges. Shorter loan terms tend to have lower rates. However, rate differences vary by lender.

Explore Different Home Loan Options

Multiple mortgage loan options are available to eligible homebuyers. Many lenders offer conventional and federally backed home loans, including Federal Housing Administration (FHA), United States Department of Agriculture (USDA), and Veterans Administration (VA) loans. Each loan program has different eligibility requirements and minimum rate offerings for borrowers.

Unsure if buying a home right now makes sense for your finances? Decide whether your next move should be to a home of your home by exploring HawaiiUSA's mortgage programs. Select from a variety of budget-friendly financing options to meet your needs. Apply now or contact us at (800) 379.1300 for more information.