If you pay attention to the news, especially the economy, you’ve heard plenty about the increase in interest rates. The focus of increasing interest rates is to slow down the amount of borrowing. This includes home loans, car loans, and credit cards. If people cannot buy things because they cannot afford to borrow the money needed to make a purchase, they eventually stop buying. This effect then causes the economy to slow down including the price of goods and services, which are much more expensive than they were five years ago.
While this is a proven strategy that could benefit our economy for years and help to avoid a major recession, there are those who are feeling the impact of it now, especially those looking to buy a home. Borrowing money to buy a home would mean you would have to pay higher interest rates. This increase in cost can hit the average home buyer by hundreds each month, making their mortgage payments go up by thousands of dollars a year. But there is some good news.
Benefits Of Higher Rates For Home Buyers
Home buyers should not allow increased rates to keep them from looking for the right deal. Often, these are the times when you find gems because others simply give up and focus on saving up more money while waiting for rates to go down. Now is the time that you can sift through the options and find some properties that are reasonably priced and also benefit from:
- Less competition: When interest rates were lower and prices were skyrocketing on homes, buying was a disaster for those looking for a nice home at a fair price. Why? Before you could even make a reasonable offer, someone else would swoop in and make an offer near or above the asking price, taking all the conditions the sellers would demand and agreeing to everything so that they could grab the property. The competition has been severely slowed down because of the rate hikes.
- Sellers are more agreeable: Because there are fewer qualified buyers, sellers are becoming more open to listening to requests. This does not mean just with the asking price but also with things like work that needs to be done on the house, covering closing costs, and more.
- High rates may be temporary: If you were to buy now, yes the rates would not be a benefit to you. However, there’s a good chance that you will be able to refinance within a couple of years to a lower rate. Having that kind of flexibility makes a major difference, especially if you are able to grab a great property now because others couldn’t afford the rate hikes.
- Sellers making improvements first: Before listing, many sellers are now taking care of major renovations themselves. Two years ago, a house that needed $50,000 worth of work could be listed as is and still get the asking price. Now, if that same property owner wants a reasonable offer, they either have to drop their price by at least $50,000 or get the work done themselves. Buyers can be more selective and are not interested in paying full price for something that then needs a lot of work.
If you take a moment to look at the houses currently listed, you will notice that many of them are actually on the market for more than three months now. That would not have been the case even a couple of years ago as a lack of inventory caused home prices to skyrocket and with low-interest rates, buyers were able to get affordable loans and the properties they wanted. Now, homes are sitting on the market much longer and buyers finally have options that they can choose from with less competition.
Is It The Right Time To Buy?
Everyone has to determine where they are at in their finances. Before you can determine if it’s the right time to buy, you need to work with a realtor who can tell you if you are ready to buy. For example, how much do you have to put down on a property? Would you be able to cover the monthly payments with the inflated interest rates? How is your credit score? Are you able to show a steady income?
Once you have made yourself the best possible candidate to buy a home, the next question focuses on the market as it stands now. One thing that is making buyers optimistic about the current market is that home values are staying high, despite the lack of sales. This is in large part because of the lack of inventory and the fact that homes are still being sold at record prices. If you can get a better deal on buying than you can rent, it’s always a good idea to consider buying your own home. Work with a realtor to determine the best options for you and what’s available in your local market.
You may also want to take some time and research your options for lending. There are many programs and lending opportunities that allow people to get better deals that make their purchases more affordable. One of the best examples, especially during a time of higher interest rates, is when people are able to secure a VA loan, meaning they do not have to put money down on the property and usually can also secure a lower interest rate on what they need to borrow. Deals like these make it much more affordable to purchase a property and can give you a major advantage over other buyers and investors.
For those interested in learning more about investing in real estate, one of the key things to remember is that the lower the monthly payments on a property, the more you can make off the rent. However, now may not be the time to worry about profits and instead, you should focus on acquisitions. If you are able to break even for five years by renting a property out, you have the option to refinance for a cheaper rate down the road or sell for a profit if the market has gone up. Rent is still strong and people are aware of the value of buying homes now to avoid having to rent in the future. Consider that if you are thinking about buying as an investor.