Hacks for buying a house in a high-rate market (Podcast)

November 1, 2022 - 6 min read

How to succeed as a home buyer in today’s market

Rising rates can put the squeeze on home buyers — there’s no question about that. But a higher rate doesn’t have to be the end of the line. There are things you can do to ease the pressure and boost your budget, even as rates rise.

Mortgage expert Ivan Simental broke down some of these strategies in a recent episode of The Mortgage Reports Podcast. Here’s what he had to say.

Listen to Ivan on The Mortgage Reports Podcast!

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1. Focus on you, not the market

It’s easy to fixate on headlines about rising interest rates, but Simental says it’s more important to focus on your specific financial situation rather than the market at large.

“Try not to follow where interest rates are at so much,” Simental says. “The market is always going to be like this. It’s going to go up and down and it’s going to have good months and bad ones. But the important thing is to stick to your plan.”

“The market is always going to go up and down. But the important thing is to stick to your plan.”

2. Know your finances

To qualify for a mortgage at today’s higher rates — and make sure you get a loan you can afford both now and down the line — having a good handle on your finances is critical.

Simental stressed the importance of looking at your financial stability over the long term. As he put it, “Are you going to make a job switch or take fewer hours, or are you going to be on maternity leave?” These types of things impact how much home you can afford and qualify for.

Ideally, you want to get to a place where your earnings are consistent and reliable. This will lower the risk you present to lenders and make it easier to qualify for a loan. “Get consistent with your income,” Simental says. “Make sure that you have all of your finances in order and make sure that you are working full-time.”

You can learn more about income requirements for home loans here.

3. Tackle debt

Your debt-to-income ratio (DTI) is a big factor in your home-buying budget, so pay off debts where you can before you start house hunting.

“I would honestly suggest eliminating all of the smaller payments that you are paying — whether on your credit card or [a] small student loan that you can pay off — because that’s just really going to harm you when you go into the qualifying process for a home,” Simental says.

According to Simental, your DTI will need to be under 45% or 50%, depending on the loan program. “That includes your mortgage payment. And if you have car payments, student loans, credit cards, personal loans, that all gets taken into consideration and gets looked at, and it can hurt your application,” Simental says. “Make sure to take care of these debts.”

You can learn more about how lenders view your debt-to-income ratio here.

4. Shop around

Putting some time into choosing a lender and loan program is key to getting an affordable home loan. Interest rates and loan options vary a lot from one lender to the next, so consider at least a few before picking your mortgage company.

“Make sure you’re shopping around for the most competitive rate,” Simental says.

Be ready to talk in detail with each loan officer, too, as they can help point you toward the best program and rate for your needs. They’ll want to know your budget for closing costs, your long-term plans for the home, and more.

5. Beef up your credit score

Your credit impacts both your ability to qualify for a mortgage and the interest rate you’re quoted.

“Take a look at your credit score,” Simental says. “If your credit score is not where it needs to be or not where it should be, make sure that you come up with an action plan to get it to the best possible score you can. The higher the credit score, the better the interest rate and the better loan program options that you will have.”

If your score is on the lower end, a good loan officer will help you build a roadmap to improving your credit.

“Even if you’re not ready to buy right now, connect with a loan officer and let them know ‘Hey, I want to run my credit. I want to see where it’s at. I want to see if there is a room for improvement,’” Simental says. Ask them, "'What do I need to do so that I can have the best possible credit score?’”

You can learn more about credit score requirements at: What’s a good credit score to buy a house?

“If your score is on the lower end, a good loan officer will help you build a roadmap to improving your credit.”

6. Stay on top of your payments

Payment history plays a big part in your credit score, so as Simental explains, “Make sure that you are checking your debts. Whether it’s those credit cards that you have, whether it’s a small installment loan that you have, or your car loan, make sure you’re keeping up with them.”

To ensure nothing falls through the cracks, Simental recommends setting your debts, credit cards, and regular bills on autopay. “That way, you know that you are never going to forget to make a payment,” he says.

7. Save more cash than you need

You’ll need enough saved up for the closing costs and down payment, of course, but having extra savings can only help your mortgage application. In fact, it might be what pushes you over the edge if you’re on the brink of not qualifying.

If you’re not sure how much you should have saved up, talk to your loan officer. “They should give you a game plan or a roadmap as to where you need to be with your down payment, your closing costs, and any additional funds that will come up during the transaction,” Simental says.

To learn more, see: How much money do you need to buy a house?

8. Increase your income

The more you can increase your earnings, the easier getting a mortgage loan will be — no matter where rates are headed.

“Think about specific career opportunities that you can take or other income opportunities,” Simental says. “Is there an option for you to get a promotion? Is there an option for you to start a side hustle? Can you do something to increase your income during the next few years?”

It may mean drawing out your timeline a little bit, but increasing your income could seriously improve your chances of qualifying for the house you want.

9. Don’t put too much stock in headlines

There are always news stories and headlines about the housing market, but be careful about consuming too much. These often highlight the most extreme happenings in the market and are indicative of more general trends — not necessarily the rates or experience you’ll see if you buy a home.

“I always tell my clients, ‘Look, If you are in a good place to buy a house, then right now is a good time to buy a house,’” Simental says.

“If you’re not, then it is not a good time to buy a house — and that is why it is so important to get with an individual who’s really going to look out for you, your finances, and your specific situation... Speak with a professional who’s doing this day in and day out.”

Your next steps

Whether you’re ready now or just preparing to buy a house, speaking with a mortgage lender is a smart first step.

Your loan officer can take an in-depth look at your income, credit, and current mortgage rates, then tell you what you’re able to afford. If you’re not in an ideal position to buy right now, they’ll put you on a road map to financial readiness.