Home loans are often the only way hard-working Americans are able to buy the house of their dreams. However, with rising interest rates, more and more Americans have stopped taking out home loans.
In fact, home loan originations have reached a four-year low. This is because as interest rates rise, mortgages have become more expensive over the course of the last five years.
Compared to the same time last year, home loan origination dropped 27% in July and the trend is continuing into the fall.
Additionally, the rates of home foreclosures and delinquencies are also rising across the United States, particularly in major cities like New York and Miami.
So, how do we afford a house with rising interest rates?
As the costs rise, many buyers have even had to borrow money from family and friends. Co-signers have become co-buyers and they’re involved in nearly 18% of the single-family homes that are purchased today.
Some Americans opt for an adjustable rate mortgage (ARM). This is a type of loan that can be adjusted or changed while the homeowner is paying off the loan. For many, this type of loan is beneficial because the fixed rate can be as short as one year, however, some can last as long as 10 years before adjustments are available.
The long way to home buying is improving your credit score gradually over time. Your credit score is a represented as a number ranging from 300 to 850. It is determined by the amounts you owe, new credit, your credit history, your payment history, and a mix of credits.
Your likely to get the best interest rates on a house when you have a score of 740 or higher. To buy a house, you need a credit score of 500 or higher. However, student debt, late bills, and other expenses have resulted in many Americans possessing lower FICO scores.
Build your credit by working on the above factors that make up a credit score. Those who have no credit may have an easier time building up a credit score through a department store credit card and paying off student loans consistently. Those with poor credit scores and a longer credit history will have a harder time building their score since they’re more inconsistent when it comes to paying off debts and loans.
Co-creator of The Good Credit Game, Lee Gimpel, notes the importance between a one or two percent interest reduction.
“A higher credit score should net you a lower mortgage rate. That lower rate, even if it’s only 1 or 2 percent lower, can mean saving thousands of dollars per year,” Gimpel says.
About 43 million Americans move every year, but many people are looking to settle down and stay put for a while. Buying a home is hard and it’s even more difficult when interest rates keep rising. Making on-time payments and relying on close friends and family may be the difference in a few thousand dollars when you buy your next home.
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