It’s no surprise that mortgage interest rates have been rising recently. For those looking to buy a home, this means higher borrowing costs and increased mortgage payments. This affects affordability, meaning you won’t get as much for your money.

Some people have chosen to postpone their loan applications until rates decrease. But while this approach might be popular, there are valid reasons to submit your loan application now—before a rate drop.

1. Secure the best loan program before house hunting.

Mortgage programs aren’t one-size-fits-all.

When you submit an application and work with a lender, they’ll assess your circumstances and determine the best loan program for you.

Submitting an application before a rate drop allows you to complete much of the legwork early. You can enter the buying process knowing what you can afford. This way, you’re not working backwards (ex. finding a house and then securing a loan).

Having an approved loan application can also increase a seller’s confidence. You’ll present yourself as a serious buyer, and they’re more likely to choose your offer over a non-preapproved buyer.

2. Speed up your offer acceptance with a preapproval.

Keep in mind that rate drops typically increase competition as buyers flood the market to take advantage of the decrease. So a home sitting on the market for a while could suddenly receive a lot of interest. In which case, the seller might get multiple offers in a short period.

In these scenarios, buyers also need to be ready with their mortgage preapproval to increase their chance of acceptance. If you wait until a rate drop to submit your loan application, it might take several days to hear back from the lender, which could result in missing out on the property.

3. Potentially more cost-effective to buy now (versus continuing to rent).

While waiting for rates to decrease might seem advantageous, calculating the potential financial benefits of buying now—despite higher rates—might reveal that owning is more cost-effective.

At FirstBank Mortgage, we have tools that compare your current rent with the cost if you purchase a home, and we can factor in things like loan program and discounts. We can compare both scenarios to see which is more cost-effective. 

Keep in mind that owning a home builds equity and renting doesn’t. Additionally, you might benefit from potential tax deductions as an owner.

Any future drop in mortgage rates could likely increase competition and push up sale prices. Therefore, you could end up paying more for a property compared to buying now.

4. Increase bargaining power to get seller concessions.

Since higher mortgage rates can result in fewer buyers in the market, buying now might give you some bargaining power. If eager sellers receive few offers, you could possibly negotiate for concessions to help reduce your cost of homeownership.

For example, the seller might agree to lower their asking price, contribute to your closing costs or pay for a temporary rate buy-down. But on the other hand, when mortgage rates decrease and competition increases, sellers are less likely to consider such concessions.

Conclusion

Submitting your loan application before a potential rate drop has several advantages. You can act quickly in a competitive market, you’ll know what you can afford, and it could give you more bargaining power with sellers.

If you’re ready to take the next step, contact the loan experts at FirstBank Mortgage to get started with your preapproval.