Why Today's Housing Market Offers The Perfect Opportunity To Break Mortgage Norms

The mortgage industry as a whole has changed significantly over the last few years. Mortgage interest rates have increased substantially in the last year as inflation has risen. After years of very low interest rates and lots of flexibility in refinancing, thanks to high home values, things are much different for those entering the mortgage market today.

That doesn't mean you should stand back and wait it out, though. There are many reasons you should buy a home, but there are some vastly different takes on the ideal terms and conditions for you. Though it's always wise to speak to a financial professional about your own specific situation, goals, and needs, now could be the ideal time to break mortgage norms, like taking on an adjustable rate loan or skipping the down payment, to reap a potentially better long-term outcome for you. Before you buy a home or apply for a loan, here are some key factors to consider.

Don't skip the 20% down payment, but get some help

In recent years, many people have skipped having the 20% down payment some lenders require aiming to finance more of the home's purchase value, often at a higher interest rate than if they had the larger down payment. Get that down payment together and make it. Doing so helps to reduce how much your monthly payment is each month, something that's often valuable when it comes to higher inflation periods. It also helps eliminate the need for private mortgage insurance, which is also a tacked-on fee of between 0.2% and 2% that makes your loan more expensive. The higher down payment means less risk for lenders, which nearly always helps a person qualify for a lower interest rate on the loan, saving you money.

Find out if you qualify for a down payment assistance program or grant. Many states and organizations offer these as a way to help qualified individuals to get funds to cover their down payment. This may be done through a low-cost loan for the funds or a grant you don't have to pay back if you meet the requirements for it.

At the same time, realize you don't have to have one. Though highly beneficial in the long term, if you don't have a down payment that's that high, consider qualifying for an FHA loan that doesn't require one.

Choose a loan term that's right for you

It's quite common to apply for a 30-year fixed-rate mortgage, and they are still out there. These loans have a higher interest rate, typically, than adjustable-rate loans, and that loan rate stays the same throughout the lifetime of the mortgage. Don't overlook the potential that's present in adjustable-rate loans, though.

Adjustable rate loans tend to have a lower interest rate, at least for a few years at the start of the mortgage term. They can then adjust based on the changes in key lending rates. Some of these loans will adjust downward if mortgage rates begin to fall, and that could mean cashing in on a lower rate down the road. However, there is a risk here. Rates could rise higher, making your monthly payment that much more. Read the terms of these loans to get a better understanding of the highest increase potentially yearly and whether they will adjust lower.