Tips for Overcoming Higher Interest Rates as a Buyer
nterest rates may be higher than usual, but investing in your future by buying a home should not depend on what the market and others are doing. Just like saving for retirement with 401k investments shouldn't expect immediate returns, purchasing a house is an investment for long-term wealth building when it's financially feasible to do so. Home buyers can still benefit from smart opportunities that exist even today; don't miss out!
Evaluate:
Now's a great opportunity to make sure you're ready for the new year and know what will be best for your homeownership goals! Take stock of any strategies or options that come into play when considering buying a home, so you can feel confident about whatever decision works well with your financial situation. This is especially important at this time of year - while the real estate market usually slows down during holidays, evaluating now gives you more than enough time to get everything set up before spring hits!
To Wait or Not To Wait:
Know how long you plan to live in your next home. If you plan to live in your next home for more than 5 years then moving forward with a purchase could be an option since it makes more financial sense over the long term where you could see rates drop again to refinance. If you’re not sure how long you plan to live in your next home and it’s not urgent, then it’s better to wait to see if rates and/or prices decline in the next 6 months or more.
• Feel secure with your income, credit score, and general financial situation. To get the best interest rate available, you’ve got to have your financial house in order. If you have a stable job, steady income, and good credit, you’ll have the most loan programs and interest rate options available to you. If it makes sense to wait until one or all of these factors have improved, then wait! Just don’t be in the dark — know your options based on what your situation is now and what it could be in the future to make an informed decision about what waiting will do for you.
• Focus on your monthly payments, not the interest rate. Demand is down, so prices aren’t soaring like they did this time last year. Some areas are even seeing price reductions. That means even though interest rates might be higher than they were last year, the price you pay for a home might be lower. This means your monthly payment could end up being about what it could have been a year or so ago when rates were lower.
• If you’re first-time buyer currently renting, you’ve considered the pros and cons of paying higher rent compared to a higher mortgage. What’s better for you — higher rent or a higher mortgage payment — even if it’s the same amount? Rising rents have made it tough on renters (who don’t have much control on that) so think hard if you want to get into the market sooner with your own home. You can enjoy not only stable housing payments but also the tax benefits of being a homeowner, both of which you’ll never receive as a renter.
• If you’re a current homeowner, focus on the big picture. Many homeowners that need to move are feeling like they “lost out” on a price they could have gotten a few months ago and are talking themselves out of moving because of that. Your reason for moving needs to be more than just what your home is worth — that’s the case no matter what the market is doing. But, look at it this way — if you are selling, you likely are also buying a new home to move into. And if you are worried about your current home having lost value, so too will the home you are moving into, so you’ll be breaking even.
Buying Strategies for Today’s Market
If you think you’re ready to move forward with purchasing a home in the coming months, then you need to be a smart buyer with some smart strategies under your belt.
It’s understandable if some of you can’t or don’t want to wait it out — or you just really need to move, whether it’s a new job, new baby or some other life change that can’t wait.
Here are some ideas and tactics for buying a home in today’s market:
• With less demand, it’s more of a buyer’s market so up your negotiation tactics and take advantage of not feeling rushed in this market to beat out other buyers. You might be able to negotiate a lower price, agree to some concessions from the seller (such as paying for your closing costs), negotiate an inspection and even the seller doing repairs. We haven’t seen terms like these for buyers in YEARS.
• Getting into the market now can be a plus since you’ll avoid bidding wars and competing with more buyers. If you are waiting until interest rates decline to buy a home, so are many other people. But, you can outsmart them by buying before rates drop and being able to negotiate better terms before demand increases. Plus, you could possibly refinance if and when rates do lower.
• Shop around for a mortgage to find a lender that can work with you and offer solid loan options. It’s definitely not a “one-size fits all” lending market right now. Lenders offer different rates, different loan programs, and different terms for 30-year fixed mortgages or 15-year fixed mortgages. Some lenders are offering interest-rate buy-down programs where you can pay a fee to have an interest rate that is lower than market value for a time. This can be a good situation for some buyers who want to grow into their mortgage payment.
• Consider an Adjustable Rate Mortgage. Depending on how long you plan on living in this next home, one option could be an Adjustable Rate Mortgage (ARM). Many first-time buyers these days are opting for this as a way to lower their payments, knowing that they will most likely sell before the rate adjusts. There are even some long-term ARM options for people who are planning on living in their homes for the long haul. ARMS nowadays are not as risky as they once were, and are definitely worth exploring depending on your situation.
• Consider a larger down payment. This will help reduce your loan amount and thus your monthly payment for a 30-year fixed mortgage.
• Consider “buying down” your mortgage by paying points at closing. This can reduce your mortgage rate and payment for a few years before it’ll return to original rate. You’ll have to pay 1% of the loan amount to be put into an escrow account at closing. Sometimes this can be funded by the seller, lender, or builder.
• Be open to refinancing your new home’s mortgage once interest rates decline. However, understand the costs of refinancing when it comes to closing costs — it could be 1 to 1.5% of the new loan amount. But remember, you still want to buy a home you can afford now, and not depend on refinancing to make it more affordable.
I’m Here to Help
With so many factors to consider when it comes to the current housing market, you don't have to do this alone! I’m here and ready serve as your guide in determining what is best for you. Let's connect soon - that way we can lay out a strategy together and be prepared if rates or prices take an unexpected drop down the line. The sooner we speak up about this, the better off you'll be—so let's get started today!
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