How to Buy a Home with High Interest Rates

Though mortgage rates are on the rise, don’t lose hope! The keys are to know your budget, maintain perspective and have a plan. Mortgage rates are currently averaging 4.5% to 5.5% — up from just 3.22% at the start of the year As a result of rising rates and rising home prices, the typical mortgage payment is now $500 higher than it was at the start of 2022. 

As with any home-buying decision, the better prepared you are the more likely you’ll achieve your goal. The tips below will help you handle rising rates, whether it means going ahead with a home purchase or taking a step back and regrouping.

Be Flexible with Your Budget

When mortgage rates are relatively steady or declining, it can be possible to get a decent read on your spending power before you actually make an offer on a home. When rates are volatile or rising, like the present, homebuyers need to be more flexible.

When rates were below 3%, buyers had the happy circumstance of being able to afford larger and higher-priced homes because the monthly payments were affordable. That is no longer the case. With increasing rates, buying power is reduced. When rates are changing as quickly as they are now, you need to keep running the numbers. Keeping in touch with your lender and adjusting your budget accordingly can help avoid sticker shock and disappointment down the road.

Don’t Time the Market

Instead of trying to time your home purchase to a specific interest rate, consider focusing on the non-financial reasons that make it the right time to buy. These can be life events such as marriage, having children or moving closer to aging parents to help with their care. Then work out the financial side of the equation.

Of course, there are economic reasons for buying a home, as the financial benefits accrue over a long period of time. On the other hand, trying to buy a home for fear of missing out on a lower rate can lead you to stretch beyond what you can comfortably afford. If you’re not financially ready to take on such a large debt, you may find yourself struggling to meet other expenses.

Be Open to Housing Alternatives

Home values have soared over the past two years as the supply of homes on the market is nowhere near enough to satisfy buyer demand. As a result, the average national price for actively listed single-family homes increased to an all-time high of $405,000 this past March, according to Realtor.com.

While overall home prices have gone up, some markets and neighborhoods are still relatively affordable, so consider expanding your search to some areas you may not have originally imagined yourself living. You can also look at different housing options such as condos or townhomes, where prices are still more affordable than your traditional stand alone family home.

Strengthen Your Mortgage Applications

In addition to market trends, the actual rate a lender will offer you will be based on your income, total debts, credit score and other financial factors. One way you can improve your chances of getting a lower rate is by paying off or reducing higher interest debts, such as credit cards.

Other steps you can take to improve your credit score include paying your bills on time and correcting any mistakes you find on your credit report. The better your score, the more likely it is you’ll find a more favorable mortgage rate.

Be Patient

At some point, rates may rise high enough that buying no longer makes sense for your situation. Perhaps monthly payments will rise to a level that you are not willing or able to pay. Or maybe, you’ll find that the combination of high rates and high home prices means you cannot afford a home you’ll be happy with. You can always take a break by taking a step back from the market so you can give yourself more time to solidify your financial position, either by saving more for a down payment, improving your credit score or paying off debt.

Buying property in the current market can be very stressful. Our team at Coldwell Banker Carroll Realty is ready to guide you in the home buying process in any market. Our local agents are well-equipped to get you the best prices and rates. We have experienced real estate professionals throughout 30a, Panama City, and Panama City Beach ready to help! Contact any of our Coldwell Banker Carroll Realty offices to get started today.