Mortgage Rates Have Hit a 23-Year High. So What Do You Do if You Want to Buy a House?

I write this with a heavy heart, because the current average rate for a 30-year fixed mortgage has hit 7.57%, according to Freddie Mac. And since I am hoping to buy a home, ideally in spring 2024, this has me worried about what kind of rates I'll see by then. When rates hit 7.49% a few weeks ago, PBS NewsHour noted that this was the highest rate since December 2000 -- almost 23 years ago.

This is quite depressing for me, and it might be for you, too, if you're also planning to buy a house. Keep reading to learn how to cope with this terrible market for home buyers.

Focus on your financial credentials

When you apply with mortgage lenders (more on that below), your finances will be thoroughly examined. So this is your chance to get ahead of any potential problems. What's your credit score? It's generally agreed that a credit score of at least 620 is a good target to aim for if you want to be approved for a mortgage loan.

Get copies of your credit report (free if you use AnnualCreditReport.com) and look for errors -- if you find them, you can request that the credit bureaus remove them. And if you have the means to pay down some existing debt before you apply for a mortgage, that will help your credit score -- and thus your chances of approval -- by lowering your debt-to-income ratio.

Keep saving money

While you're trying to find a home to purchase, keep putting money aside, if you can. The more money you have for a purchase, the better. Remember, you'll likely need to make a down payment, and the more you can put down, the more you'll save on mortgage payments. This is due to both qualifying for a lower mortgage rate (if you make a solid down payment, lenders see you as less of a risk) as well as getting to avoid paying for private mortgage insurance if you put at least 20% down.

Once you close on your mortgage, you'll still need money in reserve. That house will be your responsibility, and you'll need to pay for homeowners insurance, property taxes, and maintenance and repairs on an ongoing basis.

Shop around for a mortgage

OK, this one is absolutely crucial. You have so many options for mortgage lenders and mortgage types. Your financial situation will come into play here, so before you pick a random assortment of lenders to apply for pre-approval, consider factors like your credit score, employment, and whether you might qualify for a special type of loan.

If you're self-employed like I am, you want to apply with lenders who will judge your finances based on tax returns, rather than W-2s or regular pay stubs. If you're in the military or were in the past, you likely qualify for a VA loan, so apply with lenders who offer them. If you have a lower credit score (say, between 500 and 620) and are a first-time buyer (or it's been three or more years since you owned a home), you should look at FHA lenders.

Apply with several lenders (at least three), and see what kind of offers you get. Be sure to consider expected closing costs and down payment requirements alongside the rate you're offered in order to choose the right mortgage.

Find the right real estate agent

A real estate agent is a key member of your team, and you need all the help you can get in this market. So ask friends and family for recommendations, read online reviews, and find a few names you can follow up on. Before signing anything, talk to a few agents and make sure they understand your unique needs as a buyer.

For example, I don't have kids, and the quality of the local schools matters not one whit to me -- so any prospective agent I'd be working with wouldn't need to consider school systems in finding homes for me to check out. It's good to go into a meeting with an agent prepared with a list of questions. A good agent will have significant experience, a communication style you mesh with, and the ability to help you find the best home for you.

Take a deep breath

This is my last tip, but honestly, it's one of the most important ones. This is such a tough market, and you might be feeling as if you missed the boat on buying a home -- and there's no going back in time. I'm in the same position, and honestly? It stinks. But while I originally hoped to buy this year, I changed my mind and decided to focus on 2024 instead -- meaning I will surely end up with a much higher mortgage rate than I could've gotten if I'd acted sooner. But buying with a lower mortgage rate but with shakier finances and less money saved wouldn't have done me any favors.

So take a deep breath with me -- we can make the above moves, and we can ensure our finances are in the best shape possible before taking the plunge on buying a home. And hey, if rates come back down in a few years, we can always refinance.