Interest rates may be up but you can still buy your dream home.
What’s happening with interest rates? I have a couple of contrarian thoughts and some different ways of looking at things for you to digest so that you can make the best real estate decision in the current market. To start with, let’s look at the past.
A year ago, people were getting low interest rates; however, they were paying top of the market—waving appraisals and paying $30,000 to $100,000 over asking price with cash out of their pocket. Fast-forward to today, and multiple offers are generally gone unless it’s a special property. So what does that mean?
This means that you’re paying the list price. You’re able to negotiate, and you don’t have to spend $50,000 worth of extra cash. Now, with mortgage rates around 6.5% to 7.5%, depending on your loan product and credit, you could be looking at a median price of an extra $800 to $900 a month in your payment. If we do some simple math, that gives you over four years’ worth of payment coverage based on that $50,000 extra cash you would have had to spend a year ago.
“There are special loan products that you can take advantage of.”
No one on the planet thinks that interest rates will not go back down in the next couple of years and that you wouldn’t have a chance to refinance. In fact, buying today with rates the way they are will likely save you money as long as those economists are right. According to Fannie Mae, interest rates will come back down to 4.7% next year. You can refinance into that later, which makes buying today a much better financial decision than buying a year ago.
Also, you can negotiate and there are special loan products that you can take advantage of. For example, there are the 2-1 buydowns. It allows you to get 2% off of your rate for the first year and 1% off of the second year. That gives you two years with reduced payments, and we’re able to negotiate that with the seller most of the time. There’s also the adjustable-rate mortgage(ARM) products, where you’re locked in for five, seven, or 10 years with a reduced interest rate to offset the higher costs. Simply put, in the next three to six months, until inflation and rates come down, you can negotiate a better deal on your house. There are products to keep those interest rates low; from a historical perspective, you’re financially much better off buying today than a year ago.
For additional information or if you want to talk more about these matters, feel free to reach out to me by giving me a call or sending an email. I look forward to hearing from you!
