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The fact of the matter is, in today’s housing market, with higher interest and home prices, your dollar simply doesn’t go as far as it did only a few years ago. This means that potential buyers may have to make adjustments to their expectations in order to work within today’s current market conditions.

However, there are steps individuals can take to obtain an affordable loan even in today’s market, from improving credit and financial wellness to utilizing assistance programs. 

Have a Good Credit Score

Credit scores are generally divided into tiers, which include:

• Poor (300-579)
• Fair (580-669)
• Good (670-739)
• Very Good (740-799)
• Excellent (800-850)

While some home loans, including FHA mortgages, can work with individuals with fair credit, generally you’ll need a score in the good to excellent range for a conventional loan.

While building a good credit score takes time, there are some things you can do in the short-term to give yourself a boost—especially if you are close to a potentially higher tier:

• Reduce your “credit utilization”: Pay down cards with large balances to keep your utilization of available credit under 30%. 
• Pay bills on time: Your most recent payments have the biggest impact, so be sure that in the months or year leading up to a home purchase, all bills are paid on time.
• Check your credit report for errors: As part of your yearly financial checkup and when you are preparing to apply for a home loan, obtain a copy of your credit report, checking for errors, and dispute any potential issues you find. 

And once you get approved for a loan, be sure not to make any changes to credit, like running up balances or acquiring new debt. These could change your credit score tier before your loan closes, potentially disqualifying you for your loan.

Lower Your Debt

Aside from your credit score, your mortgage rate—and the amount of loan you can qualify for—is also affected by your debt-to-income ratio.

Your debt-to-income (DTI) ratio is calculated by dividing total monthly debt payments (including mortgage, car loans, credit card payments, etc.) by your gross monthly income and is expressed as a percentage. While some mortgage products have more wiggle room, for most lenders you’ll need to keep your DTI with your new loan payment at under 33%.

For many individuals, it can be possible to reduce your current DTI, to leave more space for a new mortgage payment. Look at your debts with lower balances, including credit card debts or loans that are nearly paid off, and consider if you could pay off a debt to remove that payment from your monthly obligations. Additionally, if you have student loans, you may be able to qualify for an income-driven repayment plan to lower your monthly student loan payments.  

Compare Mortgage Types

While different loan products and different lenders may offer slightly varying rates, you may also consider strategically selecting your loan type to take advantage of lower interest rates.

Fixed rate mortgages, where your interest rate is locked at the time of approval, are often the preferred loan option, as they offer long-term stability in terms of monthly payments. They are great options when mortgage rates are low, because your rate will remain the same for the life of the loan. However, they may not be the best choice when mortgage rates are high—and are expected to come down.

Adjustable or variable rate mortgages can offer benefits when rates are high. Firstly, they often come with a lower introductory rate than fixed rate loans, giving you upfront savings. Additionally, when your introductory rate period is over (often after five years), your rate will recalibrate to market rates, potentially going down if interest rates have dropped significantly. You may also choose to refinance your loan if interest rates stabilize to a lower rate, saving money over the life of your loan. 

Our Simple Loan Calculator can help you compare your monthly payment costs when choosing a loan. However, it’s important to note that the interest rate represents the basic cost of borrowing money, while the APR (Annual Percentage Rate) includes both interest and additional fees, giving a more comprehensive view of the total cost of your loan. In this way, the APR is an important factor in comparing rates.

Visit our Mortgage Loans page for more information.

Get a Loan with a Shorter Term

Homebuyers often choose 30-year mortgages because they will spread the balance of the loan out over 30 years of monthly payments reducing out-of-pocket costs each month. However, if you can afford a higher monthly payment and are more interested in saving money in the long run, a mortgage with a shorter term may be right for you.

Shorter-term mortgages—like 15-year mortgages—usually have lower interest rates. Furthermore, because the term is shorter and interest is calculated based on the total number of payments, you’ll end up paying less interest over the life of the loan. 

Make a Larger Down Payment

Larger down payments can often earn you lower interest rates, which is why it’s important to put as much down as you can.

For conventional mortgages, aim for as close to 20% as you can get. A 20% down payment will not only help you get approved for a loan with a lower rate, it will also mean that you won’t be required to pay private mortgage insurance, an additional monthly fee.

A larger down payment can also offer one more opportunity to save: The lower your loan amount, the lower your monthly payment, and the less interest you’ll pay overall. 

Saving up for a down payment can be daunting. Consider starting a savings plan in advance to help you set and achieve your down payment goals, and creating a savings plan can also help you better manage homeownership expenses. Assistance programs may also be available—more on these later!

Work with a Local Bank

There is a common misconception that online banks and lenders offer the best mortgage rates. And while it may be easier to compare rates online, it’s definitely not always the case that rates from an online lender will be lower than those you get at your local bank.

Local banks often run mortgage specials that are lower than what online lenders are offering. And many of those low rates you find online are just the specials of local banks from other areas.

Beyond this, local lenders can get to know you, your homebuying goals, and your financial situation, using this knowledge to match you with the best mortgage product for your needs. They can also provide advice and highlight options that can help you lower your mortgage rate and get the best deal possible. Even if you explore online options, it’s always good to work with a trusted local banking partner to see what they can offer. 

Explore Government-Backed Mortgage Loans

One of the things that a local bank often do (that an online lender may not) is to help you explore alternative mortgage products. While conventional mortgages are the norm, there are many other loan products available, specifically designed to bring homeownership within reach for first-time and low- to moderate- income borrowers. 

The federal government, in partnership with local banks including Citizen Savings Bank, offers several options for borrowers. These loans include:

• VA Loans: Available for eligible veterans, active military personnel, and their spouses, these loans offer a 0% down payment and more flexible financial qualifications. 
• USDA Rural Development Loans: Available to low- and moderate-income borrowers looking to buy a home in designated rural areas, these loans also offer a 0% down payment and more flexible financial qualifications. 
• FHA Loans: FHA loans have more flexible qualifications, down payments of 3.5% to 10% (depending on credit), as well as more flexible financial qualifications. Additionally, there are no income caps and are available to anyone who qualifies based on credit and income.

Interested in one of the above loans? Speak to a Citizen Savings lender to learn more about these opportunities.

First-Time Homebuyer Programs

In addition to these government-sponsored loan programs, there are additional First-Time Homebuyer resources available to residents of Northeastern PA, which can provide down payment and closing cost assistance as well as homebuying and homeownership education, to help buyers navigate purchasing and maintaining their first homes. Some may even offer reduced interest rates.

Each locality may have different options. To learn more about local programs available in Lackawanna, Wayne, and Monroe Counties, visit our First-Time Homebuyers resource page, or check out our First-Time Homebuyers Guide for Northeast PA.

Find an Affordable Loan with Citizen Savings Bank

At Citizens Savings Bank, we know that homeownership is the cornerstone of strong communities. That’s why we strive to help would-be homeowners find the right mortgage financing products to meet their homebuying needs.

At Citizens Savings, we work hard to offer flexible mortgage loan terms customized to your unique situation, and can help match qualified buyers to homebuying assistance programs and loan products that can help make homeownership accessible, no matter the market.

Visit a local mortgage lender in one of our Scranton, Mount Pocono, Taylor, Clarks Summit, or Honesdale locations to explore your options. And when you’re ready, you can apply easily online.

Citizens Savings Bank has multiple locations throughout Lackawanna, Wayne, and Monroe Counties. For branch locations and hours, visit our website. We also have a Customer Support Team ready to answer any questions you may have. Call us today at 1.800.692.6279 or email [email protected]. Member FDIC. Equal Housing Lender.