Uncategorized October 26, 2023

Navigating The Home Purchase When Interest Rates Are High

As many of you know, 2023 has been a volatile year for mortgage rates. While many experts in the mortgage lending space hoped for rates to drop into the 5% range, a combination of economic factors including the banking crisis, our debt ceiling, international conflict and a lot more impacted those numbers to reach closer to 7.5%. Now as it stands today, mortgages rates are nearly the highest they have been since the turn of the mellenium. It is no secret that purchasing a home in today’s conditions presents challenges to many out there. Monthly payments have jumped noticeably compared to even just a few short years ago. There is no hiding from the fact that it’s more expensive to purchase a home today than at any point in recent memory. Unfortunately, that may not be changing anytime soon.

Now, when we take a look at current market conditions today in northwest Vermont, we are seeing a slight softening in the market in regards to inventory sitting for slightly longer than it was during the active summer months. This is likely due to family’s being back in school and less likely to move during the school year, but also because mortgage rates have continued to rise. Homes that are priced correctly and are presented in a good light and in good shape ARE still moving quickly though. This likely speaks to the amount of buyers still in the marketplace who are eager to find a place to live while housing inventory still remains historically low.  Having said ALL of that, if you are considering purchasing a home and the numbers for your monthly mortgage payment work, now might be the time to start that process while some your former competition remains on the sideline. Here are several strategies you can employ RIGHT NOW to navigate buying a home today in this environment. It’s best to be proactive, not reactive in today’s market. Low inventory in Northwest Vermont is here to stay for the forseeable future. How you adapt during these competitive times will set you apart:

  • Save for a Larger Down Payment:
    • A larger down payment reduces the amount you need to borrow, which can help offset the impact of higher interest rates.
  • Improve Your Credit Score:
    • A higher credit score may help you qualify for a lower interest rate. Pay down existing debts, pay bills on time, and avoid taking on new debt – especially as credit card rates are at all time highs.
  • Shop Around for the Best Rates:
    • Different lenders offer different interest rates. Get quotes from multiple lenders and compare their terms and fees.
  • Consider Alternative Loan Options:
    • ARMs typically have lower initial interest rates than fixed-rate mortgages. However, they carry the risk of rates rising in the future. A 3-2-1 Buydown may also be an option that works for you. It’s very important to understand what each offers. Consult your local lender or reach out to me if you need help making that connection.
  • Negotiate with the Seller:
    • Although not always possible, consult with me, your agent, and consider the option of seller financing. This is when you negotiate with the seller to pay them a price for their home, but also an interest rate in addition to a length of the loan. This requires experience and knowledge of how to navigate this, so be sure to seek professional assistance. This could offset some of the higher costs associated with a high-interest mortgage
  • Look at VHFA Programs for Homebuyers:
    • Depending on your financial situation, whether or not you’re a first time home buyer, and other factors, there may be local assistance programs or grants available to help with down payments or closing costs.
  • Budget for Higher Monthly Payments:
    • Calculate what your monthly payments would be at various interest rates. Ensure that you’re comfortable with the higher payments, and consider leaving some buffer room in your budget for potential future rate increases.
  • Be Patient and Watch Market Trends:
    • Interest rates can fluctuate over time. Keep an eye on market trends and be prepared to act when rates are more favorable.
  • Lock in Your Rate:
    • Once you find a favorable interest rate, consider locking it in to protect against potential future rate increases. This is typically done for a specific period, often 30 to 60 days.
  • Seek Professional Advice:
    • Consult with a financial advisor or mortgage broker who can provide personalized advice based on your specific financial situation.

Remember, while high interest rates can make buying a home more expensive, they are only one factor to consider. The overall affordability of a home depends on a combination of factors including the price of the home, your down payment, and your long-term financial stability.

Reach our directly to me if you have any other questions!