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. Usually, 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.
Wait It Out or Move Forward?
If you’ve been thinking of buying a home, here are some points to consider to help you decide whether to wait for rates to decline, or if it makes sense to move forward sooner.
- 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. Over time, you can refinance when rates go down again. If you’re not sure how long you plan to live in your next home, then it’s probably better to wait to see if rates and/or prices decline in the next 6 months or more.
- Understand your income, credit score, and general financial situation. To get the best interest rate available, you need to get 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.
- If you’re currently renting, consider 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? Rising rents have been tough on renters, so buying sooner could be smarter in this situation. Stable housing payments and the tax benefits from home onwership can make it worth it to pay a higher interest rate as opposed to renting.
Buying Strategies for Today’s Market
If you decide it’s time to move forward, here are some ideas for buying a home in today’s market:
- 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. You can outsmart them by buying before rates drop and being able to negotiate better terms before demand increases.
- 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.
- 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 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 are not as risky as they once were and are definitely worth exploring depending on your situation.
- Consider “buying down” your mortgage by paying points at closing. This can reduce your mortgage rate and payment for a few years. Motivated sellers may be willing to pay the points for you.
- 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. This could be 1 to 1.5% of the new loan amount.
We’re here to help!
Please reach out to us, and we can talk about your situation and see how you can take advantage of the current market or perhaps plan a strategy for a few months down the road.
