4 Ways You Can Improve Your Interest Rate

Interest rates were at all-time lows just a few years ago. However, they have now risen back to a more normal range, historically speaking. Even so, the fluctuations and increases in rates have many potential and hopeful homebuyers on edge when it comes to affording a new home. Unprecedently low interest rates was one factor that led to such a high demand for homes in the last few years, driving up home prices and keeping supply historically low. Although the increase in rates has increased in our local inventory in Colorado Springs, price has yet to be affected as much – supply has not caught up enough to demand. So, how can you lower your interest rate and strengthen your purchasing power in this market?

Shop For A Lender

Like shopping for any good deal, you need to shop lenders for the best rates. Don’t base your selection solely on the interest rate, however. Consider all the terms of a loan alongside the interest rate to find the best option for you. You’ll also need to work well with your lender. The best lender should be a good fit as a partner in your home purchase, not just the rate they can offer. Local lenders, such as community banks or credit unions, may be able to offer more competitive rates. They will know your local market better than anyone and can offer a more personalized experience. We can recommend some great lenders in Colorado Springs!

Downpayment

Another option to lower your interest rate is with your downpayment. The stronger your downpayment, the better your rate could be. Most of us have heard that a 20% downpayment is ideal, but not everyone can come up with the whole sum. Thankfully there are programs out there that allow for less than 20% down. However, the stronger your downpayment, the more financially viable you seem to a lender (and to a seller for that matter). If a lender sees less of a financial risk in loaning to you, they will typically offer a lower rate.

Concessions

Good real estate agents are good negotiators. Negotiating seller concessions as part of your purchase contract can help lower your interest rate. A seller concession is a sum of money given to you by the seller out of their earnings from the sale of their house to be used towards allowable costs of purchasing the home. You can use concessions to buy discount points to lower your interest rate. Though the Colorado Springs market has shifted in some ways that help buyers, such as more available listings and time to shop, we’re still in a seller’s market. Yet, this shift has made it possible for skilled negotiators to get their buyers some concessions.

Discount Points and Buydowns

You can permanently lower your rate with some extra cash by purchasing discount points, or you can temporarily buydown your rate. A buydown allows you to lower your interest rate for a period, increasing year after year until it reaches the market rate you qualified for originally. A 2-1 buydown, for example, would cut your rate 2% for the first year, 1% for the second year, and return to the full rate the third year. Interest rate buydowns are gaining traction in today’s market. They are funded through concessions paid by the seller or builder at closing. Your real estate agent needs to negotiate the buydown as part of the contract in order to use the concessions for a buydown. And, of course, you would have to qualify for the full rate.

When You Buy or Sell with Us, The Power is in Your Hands

Whether you need trusted lender referrals to find the best rates and terms or a skilled negotiator on your side: When You Buy or Sell with Us, The Power is in Your Hands. Contact us to learn more about how we can help you reach your home buying goals.