Combating Higher Interest Rates As A First-Time Homebuyer

How are first time homebuyers combating higher interest rates in Northern Colorado in 2022 and 2023?

You’ve noticed… 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. 

As I always say, 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. 

Plus, there are some great options out there to still “win” as a buyer in this market!

Now is the Time to Evaluate

Let’s take a look at your options when it comes to combating higher interest rates when you want to buy a home. This is the best way to get an understanding of what is best for you, your homeownership goals, and your financial situation.

Keep in mind that as we approach the holidays, the real estate market tends to cool off. I always tell people to expect a lull in the market between Halloween and the Super Bowl (it’s science). That makes NOW the perfect time to evaluate your situation so you can make the best decision on which direction is right for you. Then you’ll be all set for when the new year begins and for the spring housing market.

Wait It Out or Move Forward?

Once you take time to evaluate your unique situation, you’ll see that your 2 big choices are: wait it out OR move forward with buying a home.

Not sure where to start evaluating? Here are 5 things to consider before you make your choice. If you’re still feeling stuck after going through this list, please reach out to me, and I can help!

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. The longer you stay in your home, the more likely you are to see rates drop – which gives you the opportunity to refinance into a lower mortgage rate. If you’re not sure how long you plan to live in your next home and it’s not urgent, then it may be better to wait to see if rates and/or prices decline in the next 6 months or more.

Feel secure with your income, credit score, and general financial situation

To get the best interest rate available, you’ve got to have 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. 

Focus on your monthly payments, not the interest rate

Demand is down, so prices aren’t soaring like they did this time last year. We’re even seeing some big price reductions on homes right now. That means even though interest rates might be higher than they were last year, the price you pay for a home might be lower. This means your monthly payment could end up being about what it could have been a year or so ago when rates were lower.

If you’re first-time buyer currently renting, you’ve considered 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 — even if it’s the same amount? Rising rents have made it tough on renters (who don’t have much control on that) so think hard if you want to get into the market sooner with your own home. You can enjoy not only stable housing payments but also the tax benefits of being a homeowner, both of which you’ll never receive as a renter.

If you’re a current homeowner, focus on the big picture

Many homeowners that need to move are feeling like they “lost out” on a price they could have gotten a few months ago and are talking themselves out of moving because of that. Your reason for moving needs to be more than just what your home is worth — that’s the case no matter what the market is doing.  But, look at it this way — if you are selling, you likely are also buying a new home to move into. And if you are worried about your current home having lost value, so too will the home you are moving into, so you’ll be breaking even. 

Buying Strategies for Combating Higher Interest Rates in Today’s Market

If you think you’re ready to move forward with purchasing a home in the coming months, then you need to be a smart buyer with some smart strategies under your belt.

It’s understandable if some of you can’t or don’t want to wait it out — or you just really need to move, whether it’s a new job, new baby or some other life change that can’t wait. 

Here are some ideas and tactics for buying a home in today’s market:

With less demand, it’s more of a buyer’s market so up your negotiation tactics and take advantage of not feeling rushed in this market to beat out other buyers

You might be able to negotiate a lower price, agree to some concessions from the seller (such as paying for your closing costs), negotiate an inspection and even the seller doing repairs.  We haven’t seen terms like these for buyers in YEARS.

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.  But, you can outsmart them by buying before rates drop and being able to negotiate better terms before demand increases. Plus, you could possibly refinance if and when rates do drop.

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. Some lenders are offering interest-rate buy-down programs where you can pay a fee to have an interest rate that is lower than market value for a time. This can be a good situation for some buyers who want to grow into their mortgage payment.

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 these days 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.

Consider a larger down payment

This will help reduce your loan amount and thus your monthly payment for a 30-year fixed mortgage. I’ve written about a couple of ways to do that here and here.

Consider buying down your mortgage by paying points at closing

This can reduce your mortgage rate and payment for a few years before it’ll return to original rate. In some cases, you can buy down your interest rate permanently! You’ll have to pay 1% of the loan amount to be put into an escrow account at closing. Sometimes this can be funded by the seller, lender, or builder. In many cases, this can make a bigger impact on your monthly payment than putting down a larger down payment. This may be one of the best kept secrets when it comes to combating higher interest rates.

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 — it could be 1 to 1.5% of the new loan amount. But remember, you still want to buy a home you can afford now, and not depend on refinancing to make it more affordable!

I’m Here to Help

That’s it for your first step in combating higher interest rates.

As you can see, you’ve got a lot to think about when it comes to today’s housing market and determining what is best for you.  Know that you shouldn’t try to figure all of this out by yourself, that’s what I’m here for!

Please reach out to me and we can go over your particular situation to see if you should wait it out or come up with a strategy so that you can be ready to purchase a home sooner.

The earlier we meet up, the better since we’ll have an action plan in place. That way if rates and/or prices drop, we will know what steps to take at the get-go!