Can you believe it? Just a few years ago, mortgage rates were super low, like below 3%. But guess what? By the end of last year, those rates for the 30-year fixed loan went through the roof, hitting over 7%! That's the highest it's been in 20 years! Crazy, right?

Homebuyers have been feeling quite overwhelmed lately, to say the least. They're wondering if they can handle these higher rates without breaking the bank and still manage to buy a house. But honestly, a lot of them aren't really sure.

““It’s different from any market that I’ve been through before,”

“People just don’t know what to do, so a lot of people just aren’t doing anything. They’re not selling, they’re not buying. They’re just kind of waiting to see what’s happening.””

— Ralph DiBugnara, a mortgage banker, real estate investor, and president of Home Qualified in New York City.

In today's crazy housing market, it's clear that the old rules of getting a mortgage may not fit anymore. Things are unpredictable and unprecedented, so it's time to rethink some of those traditional protocols we've always followed. Here are a few rules that used to be set in stone, but breaking them might actually be a smart move now. Plus, we'll share some wiser alternatives to consider instead.

1. You should get only a 30-year fixed-rate mortgage

If you've noticed that interest rates on fixed-rate loans are sky-high, here's a little tip: why not take a look at an adjustable-rate mortgage, also known as an ARM? It could be a pretty sweet alternative for you to consider.

You know, ARMs are pretty interesting. They usually start off with lower interest rates compared to fixed-rate loans, especially in the beginning. But here's the thing, after a while, that rate will change based on the market situation. And let's be honest, nobody can predict which way those rates will go. So yeah, it definitely comes with some risk.

““Especially in today’s high-interest rate environment, an adjustable mortgage can offer you a great opportunity to obtain a lower rate,”

“The key is that you need to determine how much your payment will be if rates continue to increase and hit the capped level. If you are able to comfortably afford the potential maximum payment, then you’ll be better off with an adjustable-interest rate mortgage, generally speaking.””

— Bill Samuel, a real estate developer in the Chicago area.

““Adjustable-rate mortgages in general are a good strategy,”
“But you have to have an exit strategy.”

”

— DiBugnara

When it comes to getting out of your mortgage, you could have a few options. One option is to refinance your loan to a fixed-term mortgage when interest rates go down. Another option is to sell the house altogether. And finally, you could transform the property into an investment where you can make some money and handle any higher interest rates down the line.

2. You have to have a 20% down payment

You know, that so-called "rule" that was going around? Turns out, it was never really true, and especially not now.

It's definitely true that if you're able to put down a 20% down payment when buying a house, it shows the seller that you mean business. Plus, it's a good way to avoid having to pay private mortgage insurance, which is basically a fee charged by the lender because they think there's a risk involved with the loan.
But hey, don't worry if you don't have that kind of cash upfront. A 20% down payment is not a requirement by any means. There are other options out there for you to explore.

Did you know that there are a lot of loans out there that can help you if you're low on cash but still want to buy a home? They give you the option to make a low down payment, so you don't have to stress about high-interest rates. For example, an FHA loan only requires you to put down 3.5% of the purchase price. And if you're a veteran or qualify for a USDA loan, you don't even have to make a down payment at all! It's a great way to make homeownership more affordable.

You know, there are actually quite a few options out there if you're looking for some help with the down payment on your new home. The great thing is, these options come from a mix of federal, local, and private sources. They offer assistance and grant programs that specifically target first-time buyers. So, don't worry, there's some extra support available to get you started on the path to homeownership.

3. Don’t ask sellers to pay closing costs

In a seller's market, you'd be seen as a bit crazy if you even thought about asking for contingencies or for the seller to cover closing costs.

Well, the thing is, mortgage rates are sky-high and buyers are backing out left and right, causing homes to stay on the market for a lot longer. So, even though we're not quite in a buyer's market yet, sellers are definitely changing up their game plan to catch the attention of buyers in this unpredictable financial situation.

““Instead of reducing the purchase price, I would recommend asking for the same amount in seller-paid closing costs,”

“The upside is saving thousands of dollars that you would have had to come out of pocket.””

— Erica Davis, a senior loan officer at Guild Morgage Company in Myrtle Beach, SC

4. Don’t pay points to buy down interest rates

So, you know how people always say not to buy mortgage points when you're buying a house? Well, the reason behind that is because it'll actually make your upfront costs higher, even though it lowers your interest rate. It's just one of those traditional pieces of advice that's been around for a while.

Buying points is not just about tying up your cash, but it also means you have to be able to keep the loan for a long time to make up for the upfront cost. It's all about weighing the total savings on a lower interest rate against the initial expense of buying points.

In today's market, DiBugnara says it's absolutely worth it to buy points in order to secure a lower interest rate.

““Only because if you pay a bona fide discount point, which is a point to buy down an interest rate, it’s literally the only portion of your closing costs that’s tax-deductible,” he explains. “So if you pay $3,000 in bona fide discount points, you actually can write off that whole amount.””

— DiBugnara