When the economy and real estate market shifts downward, the news cycle fills up with articles and data points about home values, sale prices, and interest rates. I then get many questions about these topics, and one of the most common questions is… “why would people move now?”
There are many reasons families decide or need to move, and it may not be practical to wait for all the economic and financial lights to be green all at once. A new job or relocation, another new baby, or any number of reasons could lead to the need to move.
If that’s the case, don’t let the headlines work you into a panic. You have options and even a couple of advantages.
A Cooler Housing Market Means More Leverage for Buyers
The recent interest-rate hikes made the low rates seen throughout 2021 a rosy memory, but higher rates will decrease demand, leaving more houses available for purchase. Sellers will now have to compete for buyers, giving buyers more options and inventory to choose from.
Leverage Financing Options
With high mortgage rates and monthly payments, financing options are more important than ever, and fortunately, there are options to choose from.
7 Home Financing Options When Mortgage Rates Are High
- Get an adjustable-rate mortgage. Also known as an ARM, an adjustable-rate mortgage loan begins with a lower interest rate, then adjusts according to the market rates set by the Federal Reserve.
- Buy down your rate with seller-paid closing costs. A buydown allows a borrower to get a lower interest rate by paying discount points at closing. One way to get the buydown cost covered is by asking the seller to pay closing costs, and those dollars are used to buy down the interest rate.
- Ask for seller concessions. Seller concessions are cash contributions that the seller agrees to pay. Buyers typically use these funds for multiple reasons to reduce the cash needed at closing.
- Ask for Lender/Builder Incentives. New home builders offer many creative and generous incentives and seller concessions to entice buyers. One word of caution – be sure to read the fine print and fully understand the benefits and costs of these incentives before signing on the dotted line.
- Refinance when rates go down. Remember that as long as you take care of your credit and maintain equity, you can also wait to refinance until interest rates drop as lowering your interest rate can reduce your monthly payment significantly.
- Temporary Buydown. A temporary interest rate buydown is a loan with a lower “effective” interest rate at the beginning of the mortgage, lower than the “permanent” interest rate. The buyer’s interest rate will be low in the first year, and then it will increase in years two, three, and four.
- No-cost refinance for the first 5 years. A no-closing-cost refinance allows you to refinance with no lender fee if the rate goes down, potentially saving thousands of dollars and providing a lower interest rate if available.
Budgeting Tips
For those home buyers who are required to carry Private Mortgage Insurance (PMI), remember that once you get some equity, you may be able to refinance to remove PMI from your payment.
The conclusion here? If you are a home buyer, don’t focus on fluctuations in the real estate market. Understandably, you want your home to be a good investment, but most important is that you have a home that suits your needs and that you can imagine staying in for years.
As with all decisions about buying a new house or selling the one you have, every situation is unique. If you have questions about your situation, please give me a call. I would love to answer your questions and help you evaluate your best options for purchasing a home.
