With the unpredictability of today’s housing market, first-time and repeat homebuyers alike are seeking out new ways to find favorable mortgage rates. The average rate for a 30-year fixed mortgage has recently fallen below 6.30%. In light of this, millions of Americans are looking for financially savvy ways to get their share of savings. Experts emphasize that making larger down payments and considering alternative mortgage options can significantly impact the rates offered by lenders.
Scott Linder, a mortgage expert, highlights that increasing the initial down payment can often lead to more favorable terms from lenders. Meanwhile, Matt Schulz, a senior industry analyst, asserts that the financial benefits of a reduced mortgage rate can be substantial for borrowers. As we prepare for the next Federal Reserve meeting on September 17, this potentially could be a turning point for interest rates. This increase would provide additional relief to homebuyers.
Understanding Down Payments and Mortgage Options
According to the National Association of Realtors, the average down payment is 18% for all homebuyers in 2024. For first-time buyers, that down payment decreases to only 9%. Buyers who can afford to make a larger down payment should do that, Linder adds.
“If you have a higher FICO score, you are going to get a better rate.” – Scott Linder
Increasing the size of your down payment reduces your loan amount by a lot. It further demonstrates to lenders that you’re financially sound, encouraging them to compete for your business through better rates. Beyond that, he recommends breaking out of the box of the typical 30-year mortgage.
“Don’t put yourself in a position where you think a 30-year mortgage is your only option,” Linder cautions. He proposes looking into Adjustable-Rate Mortgages (ARMs), which can slash rates.
“A seven-year ARM gives people the chance to take advantage of a lower rate today.” – Scott Linder
These may be tougher projects, the up-front savings they present may prove to be more handy over the long haul.
Impact of Credit Scores on Mortgage Rates
This leads to the undeniable role that credit scores play in determining mortgage rates. Schulz stresses the importance of keeping payments on time as one of the most effective ways to improve an individual’s credit profile. Indeed, as he highlights, soon after a new 30-day late payment, credit scores can drop by 100 points or more.
“Even a single late payment on your credit report can knock 50 points or more off of your credit score, so if there’s one listed wrongly on your report, you need to get it fixed.” – Matt Schulz
Naturally, borrowers with the highest credit scores are going to benefit from the best interest rates. Once your score exceeds 780, according to LendingTree’s data, you will be able to qualify for a 30-year fixed mortgage rate of only 6.19%. In comparison, people with a 700 to 739 score can expect rates to be about 6.39%.
Additionally, Schulz recommends keeping revolving debt below 30% of available credit to minimize the adverse effects of high balances on credit scores.
“Asking your credit card issuer for a higher credit limit can boost your score,” he advises, adding that this should only be done if it does not encourage unnecessary spending.
Future Outlook on Interest Rates
Lawrence Yun chief economist is upbeat about prospects. Realtor.com chief economist Daniel Sacks explains that if the Federal Reserve cuts its target interest rate, mortgage rates for both 15- and 30-year fixed mortgages should follow suit. Yun notes that any expectation of rates dropping down below 4% or even 5% might be overly optimistic.
“Expecting 4% or 5% — I don’t think it will happen.” – Lawrence Yun
Even with recent ups and downs in mortgage rates, the spring housing market is shaping up to be surprisingly active. The average rate on a 30-year fixed mortgage experienced its most significant one-day drop in over a year last Friday, raising hopes among potential homebuyers.