Buying a Home When Interest Rates Rise: 6 Options Buyers Should Know

When mortgage interest rates rise, it can be frustrating—especially if you were already planning to buy a home. A higher rate can increase your monthly payment and may change the price range you originally expected to shop in.

But a change in rates does not necessarily mean you have to put your home search on hold. It may simply mean changing your strategy.

Here are several options buyers can consider when interest rates increase.

1. Revisit Your Comfortable Monthly Payment

Instead of focusing only on the maximum amount you are approved to borrow, determine the monthly payment you actually feel comfortable making.

Your total monthly housing payment may include principal, interest, property taxes, homeowners insurance, mortgage insurance, and HOA fees if applicable.

If rates rise, your comfortable purchase price may need to come down somewhat—even if your lender technically approves you for more.

2. Ask About a Seller-Paid Interest Rate Buydown

Depending on the property and the terms of your offer, a seller may be willing to contribute toward an interest rate buydown.

Rather than simply asking for a lower sales price, it may sometimes make more sense to negotiate seller concessions that can be used toward allowable closing costs or to reduce your interest rate.

Your lender can explain what options are available based on your specific loan program and financial situation.

3. Compare Loan Programs and Lenders

Different lenders may offer different rates, fees, loan products, and assistance programs.

Depending on your circumstances, you may qualify for options such as:

• Conventional financing

• FHA financing

• VA financing

• USDA financing

• Down-payment-assistance programs

• Builder financing incentives on qualifying new-construction homes

  
  

Even a small difference in interest rate or lender fees can affect both your monthly payment and the amount of cash you need at closing.

4. Consider New-Construction Incentives

Builders sometimes offer financing incentives that individual homeowners may not be able to provide.

Those incentives can include closing-cost assistance, temporary or permanent interest-rate buydowns, or preferred-lender incentives.

That does not automatically mean new construction is the better choice, but it can be worth comparing the total monthly payment and cash required at closing, rather than looking only at the purchase price.

5. Improving Your Financial Profile May Help

If you are not purchasing immediately, ask your lender whether improving your credit score, reducing certain debts, or increasing your down payment could improve your loan terms.

Do not make major financial changes without speaking with your lender first. Paying off accounts, opening or closing credit, or moving large amounts of money can sometimes affect your mortgage approval in unexpected ways.

6. Remember That the Asking Price Is Only One Part of the Negotiation

When interest rates change, buyer and seller behavior can change too.

A seller may be willing to negotiate on price, closing costs, repairs, or other terms depending on the property and current market conditions.

Sometimes the best financial strategy is not simply negotiating the lowest possible sales price. Your Realtor and lender can help you compare different scenarios and determine which structure makes the most sense for you.

Don't Base Your Decision on the Hope of Refinancing

You may hear people say, “Buy now and refinance when rates come down.”

Refinancing may be an option in the future, but there is no guarantee about when rates will decrease or whether refinancing will make financial sense at that time.

You should be comfortable with the home and the payment you are agreeing to today.

The Bottom Line

If you need or want to buy a home, rising interest rates do not necessarily mean buying is off the table.

It may mean adjusting your price range, negotiating differently, comparing financing programs, or considering opportunities where builders or sellers may be willing to help with certain costs.

The goal is not simply to find a house you can get approved for. It is to find a home and financing structure that make sense for your life and your budget.

Thinking about buying in Upstate South Carolina? I can help you evaluate homes, financing incentives, and negotiation opportunities while working alongside your lender to help you understand your options.

Lori Smith, REALTOR®

Bluefield Realty Group

Serving Anderson, Greenville, Spartanburg and surrounding Upstate South Carolina communities