Strategies for buying a home when rates are high
Jan Stapleton - 2023 NETAR President
Buying a home is a definite challenge these days. Local prices continue increasing, there isn’t a lot of inventory to choose from, and buyers are worried about mortgage rates. How high will they go? When will they come down? That’s understandable because more often than not, buying a home is about the monthly payment.
Look at the weekly mortgage rate average trend and it’s clear the 30-year loan is creeping toward 7 percent. And there could be another interest-rate increase in the FED’s pipeline to bring down inflation. Here’s a few of the leading outlooks for where rates are headed.
The Fannie Mae outlook for the fourth quarter is 6.3% and declining to 5.9% by the second quarter of next year.
The Mortgage Bankers Association thinks rates will be 5.8% then 5.4% for the same period.
The National Association of Realtors (NAR) is looking at 5.8% for Q4, then 5.6% by mid-next year.
The long-range outlook from the Economy Forecast Agency is for rates settling into the 4% range, but not until 2025.
But there are a lot of things that can play nice or ugly with rate performance that drives the average up or down. So, there’s no easy answer for anxious buyers trying to set a course to ownership. Here’s a quick look at some of the options for buying when rates are high.
Make a larger down payment
Bigger down payments typically means opening the door for better loan terms and hopefully to avoid private mortgage insurance. That equals lower monthly payments for those who have the resources to dig a little deeper, which also makes them a more attractive option for sellers.
Buy down the rate
Buying points is currently popular. Buyers can typically buy a point for 1% of the loan amount. That reduces the interest rate by a nominal range that’s usually 0.125% to 0.25%.
There are also options for temporary buydowns. It involves reducing a buyer’s interest rate for a set period. After that, it goes back to the normal rate.
Consider different type loan
For buyers using the strategy to buy, remodel and sell their home an adjustable-rate mortgage (ARM) is an option. They work for those with the discipline to get the work done and get back on the market before the rate increases. Financing with an ARM can result in substantial savings — even for those who go beyond the adjustment date. They pay a higher rate for one year in five years vs. paying a higher rate for all six years.
Buy now, refinance later
This is for the buyers who don’t want to wait and realize that they can bite the bullet, build some equity and get on with it at today’s rates. It requires shopping rates as well as the market, and it’s a good idea to have a professional working with them to sort out the details and iron out any wrinkles in a deal.
Wait for rates to go down
For some buyers, waiting it out is the best strategy because rates will eventually come down. When and by how much are a gray area. And even if rates do get back to a more acceptable level, the change will likely bring all the others who have been waiting. That could mean more competition and higher prices.
Every buyer’s situation is unique
The truth of the matter is there’s no clear-cut strategy for dealing with today’s high mortgage interest rates. The right move will depend on the individual buyers goals and resources. That’s why it’s important to partner with a professional Realtor® and a trusted lender to explore the options and plan the best real estate transaction strategy in these trying times.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,600+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us