Watch CBS News

How to afford a house when mortgage rates are high

High mortgage rates don't mean you have to give up on your home search. Getty Images/iStockphoto

Buying a home can be financially challenging for homebuyers, even when mortgage rates are relatively low. But in today's high rate environment, many are wondering if homeownership is a dream they'll be able to achieve.

As of August 24, 2023, the average rate for a 15-year mortgage is 6.83%, and the average rate for a 30-year mortgage is 7.53%. And since a higher rate means a larger monthly payment, this can seem prohibitive to borrowers whose budgets are already stretched.

However, high mortgage rates don't mean you have to give up on your home search. There are strategies that can help you find a home with a mortgage payment you can afford.

View today's mortgage rates here to see what you qualify for.

How to afford a house when mortgage rates are high

The following tips can help you make a mortgage more affordable.

Improve your credit score

Your credit score is one of the main factors lenders consider when setting your mortgage rate. 

"The higher your credit score, the lower the interest rate you can borrow," says Deni Supplee, Realtor and cofounder of SparkRental. "The fastest way to improve your credit score is to pay off all rotating credit balances (like credit" cards) in full — or at least below 30% of their limits."

Other ways to boost your credit score include making timely payments, raising your credit limit and checking your credit report for errors that could be negatively affecting your score.

Increase your down payment

The more money you put down toward a home, the less you'll need to borrow from a lender and the lower the rate they may give you. It can also help you avoid paying for private mortgage insurance (PMI), which can add extra costs to your monthly mortgage payment.

"One simple thing you can do to keep your total mortgage payment lower is to put down 20% and avoid PMI," says Supplee. "If you don't have 20%, consider doing a savings sprint to tighten up and spend nothing on discretionary expenses for a time."

Check out today's top mortgage offerings online now.

Consider buying a smaller home

While it's tempting to buy the biggest home you can, it may not be practical in the current high rate environment. Looking for a smaller home that won't stretch your budget as much can make homeownership more achievable.

You can always upgrade to a larger home when rates are lower or use your home equity to improve your home down the road.

Change your search parameters

Widening your home search can also help you find more affordable options. Consider looking at neighborhoods outside your preferred one, letting go of some "nice to have" features or even compromising on some "must haves."

It may not be ideal, but if it means the difference between owning a home and being priced out of the market, you may find it's worth it.

Shop around for lenders

It's essential to research and compare multiple lenders at any time, but especially when high mortgage rates hamper your home search. Taking the time to review rates from different lenders can go a long way in helping you find a mortgage you can afford.

"When possible, get recommendations from people you trust who may have recently purchased a home, or you could ask your realtor or insurance agent as well," says Darren Tooley, senior loan officer at Cornerstone Financial Services. "Once you have a few potential options, be sure to read the reviews of the companies as well as the specific loan officers you will be interviewing, and then start making calls."

You can also try to negotiate for a lower rate. Lenders may be willing to work with you to get your business.

"Comparison shop loans and pit lenders against one another," Supplee advises. "Get quotes from five to 10 lenders, then take the lowest rate/fee quote to your preferred lender and ask them to beat it."

Compare lender offers online now.

Consider alternative mortgage options

Traditional 30-year fixed-rate mortgages may not be the best fit for everyone, especially when mortgage rates are high. You may be better able to get into a home by choosing an adjustable-rate mortgage (ARM).

ARMs offer lower initial rates than traditional mortgages, and this initial rate typically lasts about five years. After that time, the rate varies based on current market rates.

Because of this, an ARM is best suited for homebuyers who don't plan on living in the home for longer than the initial rate period. You can also consider refinancing the home once rates go down if you plan on staying there longer.

The bottom line

Mortgage rates may be high, but that doesn't have to prevent you from achieving your goal of homeownership. You can bring it within your reach by improving your credit score, increasing your down payment, widening your home search, shopping around for lenders and considering alternative mortgage options.

That said, it's crucial to take your time, do your research and evaluate all your options to make an informed decision that works best for you and your financial situation. A professional mortgage lender can help you make the right choice.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.