How To Overcome Higher Interest Rates As A Buyer

How To Overcome Higher Interest Rates As A Buyer

Yes, interest rates are higher than they’ve been in years.  But should higher rates prevent you from moving forward with buying a home?  

Maybe, maybe not. 

As we always say, the best time to buy a home, whether you’re buying your first home or your 10th home, is when it makes financial sense for YOU — regardless of what everyone else is doing, regardless of what the market is doing, and regardless of interest rates. 

Just like investing in your 401k — you are building wealth for the long-term, not looking at what the stock market is doing every day to decide whether or not to save for retirement.  

Buying a home is the same. Invest in your future when it makes financial sense for you to do so. 

Plus, there are some great options out there to still “win” as a buyer in this market!

Now’s a Good Time to Evaluate

Let’s look at these options and strategies if you’re thinking about buying a home in the coming year. That way you can have a better understanding of what is best for you, your homeownership goals, and your financial situation.

Keep in mind that as we approach the holidays, the real estate market tends to cool off. So it could be the perfect time to evaluate your situation and then make a sound decision on what direction is right for you. Then you’ll be all set for when the new year begins and for the spring housing market.

Wait It Out or Move Forward?

If you’ve been thinking of buying a home, then you need to consider what is the best decision for you — whether to wait it out to see if rates decline and prices adjust, or move forward with a purchase.

Take the time to read the bulleted list below to jumpstart your thinking and see where most of your answers tend to lean toward. And don’t hesitate to reach out to us to discuss your particular situation – we are here to help!

• Know how long you plan to live in your next home. If you plan to live in your next home for more the long term, then you may have the opportunity to see rates drop in the future and take advantage of a refinance. If you’re not sure how long you plan to own your next home, then maybe you want to see what happens with rates and the market over the next 6 months or so.

• Feel secure with your income, credit score, and general financial situation. You’ve got to have your financial house in order. If you have a stable job, steady income, and good credit, you’ll likely have several loan programs available to you. If improving one or all of these factors opens up a loan program that meets your needs better, 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. 

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. Be sure to consult with your realtor to make the best offer.

• 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 be able to negotiate better terms before demand increases. Plus, you could possibly refinance if and when rates do lower. 

• Take the time to find a mortgage solution that works best for you and your needs. Home finance is definitely not a “one-size fits all”. There are many loan programs that have been introduced recently that help home buyers in this market. Get in touch with us so we can go over them with you!

• 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. The 2-1 buydown or 1-0 buydown will reduce your mortgage rate and payment temporarily before it’ll return to original rate. These buydowns 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!

We’re Here to Help

As you can see, you’ve got a lot to think about when it comes to today’s housing market and determining what is best for you.  Know that you shouldn’t try to figure all of this out by yourself, that’s what we’re here for!

Please reach out to us and we can go over your particular situation to see if you should wait it out or come up with a strategy so that you can be ready to purchase a home sooner.

The earlier we meet up, the better since we’ll have an action plan in place. That way if rates and/or prices drop, we will know what steps to take at the get-go!