Is the mortgage rate or the purchase price you pay for a home more important?

If you’ve been thinking about purchasing a home and you’ve been on the fence because you’re just not sure about the right time, the information that’s going to follow is for you…

Trying to time the market to identify a moment in time to pinpoint the right time to purchase a home is an incredibly challenging endeavor indeed. It’s equivalent to trying to locate a needle in a haystack. A better more pragmatic scenario would be to look at your cash, credit, and income and decide to purchase a home based on your household budget.

It boils down to your income, monthly expenses, and having a good foundational financial framework so you can make an informed decision. If all of those are in place how do you determine what’s more important purchase price or interest rate? As interest rates continue to move higher your competition goes away. Rising interest rates remove your competition. If you’re desiring to make an offer to purchase a home and your competition is little to nonexistent you have all the cards, and you hold all the power which allows you to negotiate a fair price for the home. After all, who wants to overpay for a home?

How do we know you will not overpay for the home? Its amazingly simple interest rates drive competition.  Put another way because interest rates are so high many are sitting on the sidelines waiting to see what the market does.  That’s good news for you as a smart and savvy homebuyer because it allows you to negotiate the purchase price of the home. Negotiating a purchase price reduction of $50kto 100k in this environment is not out of the question.

Say for whatever reason you’re concerned about the market and housing prices coming down, well in most markets’ rents are still in hot demand. On the flip side, we all know this environment with interest rates is not sustainable and long-term mortgage rates will come down. When interest rates come down borrowing power increases, when borrowing power increases, your competition will increase. More people will be after that same house at 6% or a 5% mortgage rate than they will at a 7% mortgage rate. That’s just a hard fact. So in other words your $600,000 home today at a 7% 30-year fixed rate mortgage very easily could be a $650,000 or a $675,000 home or more at a 6% mortgage rate assuming interest rates come down.  The notion housing prices are going to come down because of high-interest rates is highly unlikely as rents continue to soar, long-term fixed rates are poised to fall, and the supply of homes remains low.

Think of it like this if you purchase a home today you can always trade out the mortgage rate for something more favorable when rates come down in the future. The way you should look at it as an informed homebuyer should be something like this a 6.75% mortgage rate today for example could very easily be a 5.75% mortgage in 12 months and a 4.75% mortgage in 24 months. Using a $600k purchase price for the example above that’s going to translate to somewhere around $800 in lower mortgage payments to you when interest rates come down via subsequent refinancing opportunities. Waiting to see what happens in the future might make sense if there is any concern about your credit, your down payment, or your cash. If those elements are in place and you have the goal of buying real estate and holding onto it for a few years more than likely you will end up doing very well for yourself over the big picture.

 

If you’re thinking about purchasing a home or want to get a home-buying plan created for you and your family start today by getting a complementary mortgage rate quote.

 

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