PERSONAL FINANCE

A quick guide to buying a new home when interest rates are high.

New York Life | June 26, 2024

A couple with a realtor looking at houses

Whether you’re leaving renting behind or are looking to buy your dream home, here are some tips on how to reduce the impact of today’s high interest rates on your property purchase.

Consider your mortgage options

Decide what’s right for you:

A fixed-rate mortgage that prevents you paying for future rate hikes but ties you to existing rates.
A variable-rate mortgage that saves you money if rates fall but costs more if they rise.

Get a mortgage pre-approval early

This will not commit you to choosing a particular provider, so shop around for the best offer. Then you know where you stand.

Make the biggest down payment you can

This will save the amount of interest you’ll pay in the long-= term.

Making a down payment of 20% or more can also get you get a lower interest rate and you won’t need to take out private mortgage insurance (PMI) to protect your lender.

Save for your down payment by:

Using a mortgage calculator to calculate the best down payment for you
Adjusting your budget to save more money
Boosting savings by starting a side hustle, renting out property, or investing

Contact a financial professional.

Learn more

Improve your credit score

This helps you get a better mortgage deal with a lower interest rate.

Your score is based on:

Your payment history
Outstanding balances
The length of your credit history
Applications for new credit accounts
The type of credit accounts you hold, like credit cards or student debt

Where to find your credit score:

On credit or loan statements
Via credit or housing counselors
From a credit agency like Equifax, Experian, or TransUnion

Your credit score, also called a FICO score, is grouped into the following categories:

580-669: Fair
670-739: Good
740-799: Very good
800-850: Excellent

Aim to get into the “very good” category to minimize your interest rates.

How to improve your credit score:

Make repayments on time
Improve your “credit utilization ratio” by using less of your credit limit or increasing your borrowing capacity
Correct any errors on your credit report by notifying the relevant agency
Extend your credit history by keeping dormant accounts open
Don’t take out new loans before getting a mortgage

Create a budget to stay on top of your repayments

Your budget should be realistic and affordable.

What to include: