Will you be prepared for the next low in mortgage rates?

November 20th, 2012

Mortgage rates staged their own form of pre-Thanksgiving sale by falling to a new low as of November 15. Of course, taking advantage of an opportunity to buy a house isn't as simple as responding to a blue-light special. Thinking and planning ahead are essential to putting yourself in a position to capture a low point in mortgage rates.

According to Fannie Mae, average 30-year mortgage rates dipped to 3.34 percent in mid-November, beating the previous low of 3.36 percent set in early October. Those mortgage rates had been up above 4 percent as recently as this past March.

Planning to purchase

How does a person get in position to take advantage of this kind of opportunity? There are a few steps along the way:

  1. Build a good credit history. From the moment you first start thinking of buying a home, you should be looking after your credit history. Establishing a track record for moderate and responsible use of credit should improve your chances of getting approved for a mortgage.
  2. Ball-park your home costs. Do some research into home costs in areas where you'd want to live, so you can figure out a range of prices to use as a planning target.
  3. Calculate a pre- and post-ownership budget. Figure out both how you are going to save a down payment before you buy, and then use a mortgage calculator to make sure you can afford the payments for a house in your target cost range. When using a mortgage payment calculator, be sure to factor in things like closing costs, property taxes, and insurance.
  4. Save for your down payment. These days, you may want to shoot for 20 percent of the purchase price to be conservative, though you can still try researching programs that could help you buy with less money down.
  5. Adjust to the target. Almost inevitably, home prices and mortgage rates will change while you are saving for your down payment. Keep abreast of the market, and adjust your plan as conditions change. A mortgage calculator can help you factor in new data quickly and easily.

You can't always predict when a good interest-rate opportunity will come along; but if you are well-prepared, you'll have the option of acting when the time is right.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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