For many, the idea of buying a home is the American dream. The home you are looking to buy for the next family chapter should be affordable and justifiable within your monthly budget. Here are the things to consider in today’s real estate market and how you can use them to your financial advantage when it comes to buying a family home.
It’s no surprise that interest rates have gone up and for many families who were previously pre-approved, it’s a bit of a shock for the same price pre-approval to have a payment of a few $100. per month more. While that’s okay, letting market changes dictate what you do might not be the best strategy. When interest rates rise like they did in this year 2022, it knocks your competitors out of the market. Less competition means less demand means more supply, and more supply means you can negotiate a home much more easily than you could in months past. That $450,000 house you want to buy had ten other offers associated with it six months ago and has gone up to $560,000 due to demand, now you can get that same house for $425,000. When interest rates rise, you can compensate for higher interest rates by asking your real estate agent to negotiate a lower purchase price for the home. Let’s say you were pre-approved at 3.5% on a 30-year fixed rate mortgage six months ago. Now that 30 year mortgage for the same purchase price, same down payment and same loan amount is now 6%. Now your payments are $300 more per month. If your agent can negotiate $25,000 off the purchase price of the home, he’s just bought your $300 per month payment. Yes, your interest rate is higher, but your total monthly payment would be the same as paying more for the house with a lower interest rate. Negotiating the purchase price of the home can offset the higher monthly payment.
Therefore, it is essential to work with a local realtor and local loan officer who understand the market and can best advise you on your options. Not to mention the fact that interest rates are likely to drop over the next two years. Giving you the opportunity to not only buy the home and get a lower fixed tax rate, but also align yourself for later savings in the future through later refinancing. In such a scenario, you would be able to trade an interest rate of 6% for something more attractive like 5% or less. When interest rates return to those levels they were for several years before the 2020 COVID-19 pandemic. ‘offer to you as a discerning buyer trying to get the best value for money.
It starts with a conversation with your realtor or lender. In the beginning, figure out your goals, then talk to a quality lender who can explain exactly what all of this will look like for your home purchase about your monthly budget. If you’re looking for a mortgage to prequalify for a home or just want to understand what you can afford, get started today by getting a loan quote at no cost!
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes, vacation homes and investment properties. Learn more at www.sonomacountymortgages.com.