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 I 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.  

Like investing in your 401k, you are building wealth for the long term, not looking at what the stock market is doing daily to decide whether 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 to still “win” as a buyer in this market! 

Now’s a Good Time to Evaluate

Consider these options and strategies if you consider buying a home in the coming year. 

Wait It Out or Move Forward?

If you’ve been considering buying a home, you need to consider the best decision — 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 lean. And don’t hesitate to reach out to me to discuss your particular situation, where I can provide additional perspective and insight.

• Know how long you plan to live in your next home. If you plan to live in your next home for more than five 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 unsure 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 six 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. You’ll have the most loan programs and interest rate options if you have a stable job, steady income, and good credit. 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 your situation and what it could be 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 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 a 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), so think hard if you want to get into the market sooner with your own home. You can enjoy regular housing payments and the tax benefits of being a homeowner, 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 feel 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. And if you are worried that your current home has lost value, so will the house you are moving into, so you’ll be breaking even.  

Buying Strategies for Today’s Market

If you’re ready to purchase a home in the coming months, you need to be an intelligent buyer with innovative strategies.

It’s understandable if some of you can’t or don’t want to wait it out — or you need to move, whether it’s a new job, a 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), arrange an inspection, and even have the seller do 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 refinance if and when rates do lower.  

• Shop for a mortgage to find a lender that can work with you and offer solid loan options. It’s not a “one-size fits all” lending market right now. Lenders offer different rates, loan programs, and different terms for 30-year fixed mortgages or 15-year fixed mortgages. Some lenders provide interest-rate buy-down programs where you can pay a fee to have an interest rate lower than market value for a time. 

• 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 opt for this 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 planning on living in their homes for the long haul. 

• Consider a larger down payment. This will help reduce your loan amount and, thus, your monthly payment for a 30-year fixed mortgage.

• 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

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 this out yourself; that’s why I’m here!

Please reach out to me, and we can go over your 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. That way, if rates and/or prices drop, we will know what steps to take at the get-go!