Mortgage rates are on the rise, and people in Southern Maryland need to know the impact this could have on their upcoming home buying experiences. This article illuminates the causes behind rising mortgage rates and can help prospective homebuyers in the Southern Maryland area set realistic expectations for their budgets. Keep reading to learn everything you need to know about mortgage rate increases and the local real estate market.

The “Why” Behind Rising Mortgage Rates

In short, mortgage rates are rising to combat inflation.

Interest rates are essentially the price you pay to borrow money, and they guide lenders when deciding how much to charge for mortgage rates. Because inflation increases the cost of anything, it’s only natural that interest rates and mortgage rates will follow suit.

What does this mean for homebuyers in Maryland?

Having experienced several years of record-low rates, many people considering buying a home in Southern Maryland feel deterred by the recent mortgage rate increases.

Homebuyers everywhere can anticipate larger monthly mortgage payments. In Maryland specifically, the cost of rising mortgage rates might be recouped in other areas.

Take Annapolis, for example. Some speculate that the decrease in housing prices will offset the increased cost of living caused by inflation.

Your Personal Finances Matter More Than Ever

Your finances will have a more significant impact on your ability to buy a home than the rise in mortgage rates. While increased monthly payments aren’t ideal, you shouldn’t let them deter you from your well-established homebuying plan.

If you’re in the market to buy a home, it’ll help to have a sizable nest egg that you can use as a down payment. When interest rates are low, homebuyers don’t have as much incentive to provide the traditional 20% down payment.

Providing a 20% down payment eliminates the need for private mortgage insurance (PMI). PMI is an insurance policy that protects the lender if you default on your loan, and these monthly fees can make your monthly mortgage even more expensive.

Southern Maryland real estate reports show that the median home prices are about $400,000, meaning a 20% down payment would come out to about $80,000.

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You Can Explore Low Down Payment Home Loans

Is a 20% down payment not a viable option for you right now? That’s okay. There are several low down payment loans and down payment assistance programs that allow buyers to pay as little as zero down without being heavily penalized with hefty PMI expenses.

FHA Loans

The Federal Housing Administration (FHA) offers a special loan that’s great for first-time buyers and people with low credit scores. FHA loans are available for a low down payment and can be bundled with closing costs to create a more straightforward experience.

The minimum down payment for an FHA loan stands at 3.5% as long as you have a credit score of at least 580. That said, down payments of 3.5% come with monthly premiums for mortgage insurance. Avoiding mortgage insurance is the key to creating a homebuying budget under heightened mortgage rates.

FHA loan recipients can eliminate the need for mortgage insurance if they provide a 10% down payment, half of what’s required to remove insurance premiums from a conventional loan.

USDA Loans

The U.S. Department of Agriculture (USDA) offers USDA loans as part of its Rural Development housing programs. These loans are only available in certain rural and suburban areas, but they present a great opportunity for homeownership with low monthly payments and little-to-no down payment required.

A key benefit of the USDA loan is that it doesn’t require a down payment. If you qualify for this type of loan, you can finance 100% of your home’s purchase price.

Like FHA loans, some trade-offs come with USDA loans. For example, these loans are only available in designated rural areas.

Looking at the USDA loan eligibility map, Southern Maryland homebuyers will be pleased to see that most counties south of the Washington D.C. metro area are potentially eligible.

Consider Adjustable Rate Mortgages

If you don’t plan on staying in your home for more than five or seven years, then an adjustable-rate mortgage (ARM) might be a good option. ARMs offer lower interest rates for the first few years of the loan and then adjust after that period to reflect current market conditions.

Should you decide to stay in your home, you can always refinance your mortgage after the five-year period to lock in the current market rate.

Don’t Try to Anticipate Changing Rates

Don’t let mortgage rates dictate your homebuying experience. If you’re taking control of your budget and personal finances, you can buy a home when you decide you’re ready, not when mortgage rates decide you’re ready.

The reality is that no one knows when mortgage rates will rise or fall. Trying to time the market can result in you either paying more than you need to or losing out on your dream home altogether.

No matter what happens with mortgage rates, you can still address the factors that are in your control to stay on top of your homebuying journey.

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