Higher interest rates mean that buyers and lenders need to get creative with loans. Read below on some tips on what to discuss with your lender when interest rates rise. 

• FHA financing options may allow you to offer a 0% down payment without a first time home buyer requirement. 
• Temporary 2:1 buydowns enable you to temporarily buy down your interest rate (it’s like prepaying the interest on your loan), and you can still refinance later.
• Bridge loans allow you to be able to buy your next home using the equity from your current home without having sold it. A bridge loan can be a great solution for some, however, be aware  that in order to qualify you’ll have to be able to carry your current mortgage, a new mortgage, and the payment on the bridge loan – that’s a lot! Have a serious conversation with your lender to make sure you can qualify to carry all of this debt. 
  • Some retirement plans allow for a short term loan without any penalties, so if you can’t qualify for a bridge loan this is a helpful tool. You and your lender could look into a short term loan from your 401k or IRA as long as the plan is to then sell your current house and pay the loan back quickly into the account. This is another avenue to avoid a home sale contingency (which is unattractive to many sellers). You’ll need to check with your plan provider to see how much/what you can access from your account and what the terms are, but generally this short term solution is not as scary as you think!
• Jumbo loans are sometimes priced better than conventional loans during periods of high interest rates. However as rates drop, conventional rates will probably drop further than jumbo loans, and jumbo loans won’t make a lot of sense. Furthermore, Wellsfargo/Chase are cutting back on jumbo loans so in general jumbo rates will probably increase as these two big players are out.
  • As a workaround for jumbo loans, some companies offer portfolio loans for 20% down. These are specialized loans kept on the books of an investor, but they operate much like jumbo loans. The catch is that portfolio loans have very tight restrictions and a very small number of people who qualify, however, this ensures that if you do qualify, you’re able to get a better rate.

The Bottom Line: with higher interest rates, you’ll have to get more creative with financing options. If you have any questions about financing we are always happy to sit down and chat or put you in touch with one of our trusted and knowledgeable local lenders. Contact us today!