In case you missed the memo, interest rates are quite a bit higher than during the last few years because of COVID. It’s causing some worry for buyers and sellers. Here are a few tips for buyers on how to make it through the real estate market in 2022
Don’t let interest rates dictate your home-buying budget
When looking at the bigger picture, rates are still excellent, especially compared to 30-40 years ago. Instead of focusing on the interest rate, focusing more on having a comfortable monthly payment for your new home is essential. A homeowner never wants to feel “house poor” when they move in.
Now is still a great to buy because sellers are willing to pay the buyer’s closing costs again. This is where the seller gives a little extra money to the buyer to help with the closing costs. In layman’s terms: it enables you to get a lower monthly payment for the next 30 years. Often, it helps the client either buy out their private mortgage insurance, permanently buy down their interest rate, or do a temporary buydown. Every scenario is different, so it’s important to work with your lender to understand the best options for your situation.
So the first question to ask when purchasing a new home is: where do you want your monthly payment to be? How long do you plan on being in the home?
It’s a buyer’s market again
We’ve been in a seller’s market for the last several years. There was a lot of high competition and outbidding on homes. But now, we are finding very few or minimal home offers, and sellers are more workable when selling their home. Hopefully, long gone are the days of crazy bids and pricing!
Many new homes are coming on the market, which is refreshing. There are more homes for buyers to pick from too.
Utah has a higher inventory than we’ve seen in a long time! Buyers have more choices than in the past few years. They’re able to negotiate the price and closing costs. You’ll have more competition if you wait to buy a home until interest rates come back down.
Down Payments are important … but not required
There are many options when it comes to a downpayment. Ideally, a buyer would have 20% down, so they don’t have to have mortgage insurance. But we also know that isn’t realistic for most of the world.
There are still options to help you get into a home.
You can get a phenomenal loan interest rate and low private mortgage insurance with as little as 5% down. Some programs allow for 0% to 3% down.
When you put down 5%, it’s a lot less risk to the lender, and they will most likely reward you with a lower interest rate and lower private mortgage insurance.
The interest rate isn’t the only thing that determines the cost of your loan. The type of interest rate (fixed vs. adjustable) and the term (15 years vs. 30 years) are also important factors.
A fixed interest rate means that the interest rate will never change over the life of the loan. This can be good because you know what your payment will be each month and there won’t be any surprises.
An adjustable interest rate means that the interest rate can change over time. This can be good if interest rates go down, but it can also be bad if interest rates go up.
A 15-year loan will have a higher monthly payment, but you will pay less interest over the life of the loan.
A 30-year loan will have a lower monthly payment, but you will pay more interest over the life of the loan.
Inflation is the enemy of mortgage rates
Most homeowners will have an opportunity to refinance their home one to two years after purchase.
The inflation right now is about 9%. It’s the enemy of mortgage rates. As inflation increases, mortgage rates increase. The Federal Reserve controls inflation by raising what we call the Federal Funds Rate. It is not directly tied to mortgage rates, so when you hear in the news that the FFR raised, it doesn’t mean mortgage rates have raised too. As the FFR is raised, it will start cooling off the economy and inflation. The supply chain issues will also be resolved.
It will begin coming down in the next year, which means interest rates will come down too. So if you purchased a home last year, be prepared to refinance your home in the next year or two. You’ll want to work with your lender to have a strategic refinance plan to help you lower your monthly payments.
Don’t let the interest rates scare you! The average nationwide growth per year is around 3.5%. Utah has been seeing 7%-8% in 2022 and projected to 4%-5% in 2023. If you wait for home prices to come down, you’ll be waiting an extended period.
If you want a lender you can trust to help you with an affordable mortgage, I recommend connecting with Miles Pitcher with Superior Lending.
And if you are ready to start looking for a new home or have a home to sell first,, I would be thrilled to help!