Helping Home Buyers Navigate Higher Interest Rates

September 23, 2022 | by Katie Claflin

Categories: First Time Buyer, Homeownership

This week the Federal Reserve announced that it was raising the federal funds rate. This is the fifth time that the Federal Reserve has raised interest rates this year as it attempts to curtail high inflation rates.

The Federal Reserve does not directly set mortgage interest rates, but mortgage rates do tend to move in the same direction as the federal funds rate. Therefore, it's possible that mortgage interest rates will continue to rise over the coming months.

While rising interest rates can make buying a home more expensive, there are a few ways that home buyers can offset the increased costs:

  1. Explore Down Payment Assistance Programs

Down payment assistance programs like TSAHC's make home buying more affordable by helping buyers with the down payments and closing costs. TSAHC offers assistance of up to 5% of the loan amount, which exceeds the required down payment amount for both government and conventional loans. Home buyers can use the excess funds to reduce their loan amount, thereby reducing what they pay in interest.

2. Add a Mortgage Credit Certificate

First-time buyers (defined as those who have not owned a home in the past three years) can also apply for a Mortgage Credit Certificate (MCC). An MCC is a federal tax credit that reimburses homeowners for 20% of the mortgage interest they pay each year. This Realty Austin blog post recaps the benefits of an MCC.

3. Negotiate with the Seller

While home buyers purchasing in 2020 and 2021 often had to compete with other buyers and offer over asking price, the Texas housing market is finally starting to cool off. Homes are sitting on the market longer, and sellers are lowering prices to attract more attention from buyers. Buyers therefore have more leverage to negotiate home prices and other costs.

4. Shop for your Mortgage Loan

Fees can vary from lender to lender, so it's often a good idea to apply with multiple lenders to get the best deal on your mortgage loan. In fact, a study conducted by Freddie Mac found that borrowers could save up to $3,000 just by contacting multiple lenders. List to our latest On the House podcast segment for tips on how to shop for a mortgage loan.

Additional Resources

Rocket Mortgage: How Rising Fed Interest Rates Can Affect Home Buyers and Sellers

Bankrate: How Interest Rates and Economic Factors Impact Housing

On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.

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