Here’s how your homebuying options change when interest rates fall

You and your family are thinking about buying a home, but the prospect of a 6.5-7.0% mortgage doesn’t sound all that appealing right? Do you want interest rates to come down so you can have a more affordable mortgage? This makes sense, but it’s a deeper problem and here are some things you should be aware of as it relates to what you do with your money both now and in the future…

During the pandemic, we saw a long-term interest rates dip to historical levels sub 3% mortgages were common for a good two years. Everybody and their brother who could took out a mortgage loan, did. Those mortgage loans are all still in existence today. So, you have a problem with cost-benefit-millions of people have extremely low mortgage rates, keeping them in their homes, not selling, not buying a second home, not buying the rental property, not upgrading, etc. they’re staying put. This has created a situation in which there is limited supply of homes for sale nationally.

When you have a situation where you have a tight supply of homes with high interest rates, you have an exceedingly difficult market in which for many people it’s just easier to wait to see what happens.  Here’s what you should give some consideration to when interest rates come down.

Fact #1

You will have multiple offers. In some markets and in some neighborhoods right now even with interest rates the way they are some houses are getting multiple offers. You can bank on when interest rates come down will have multiple offers when competing on a home.

When you have multiple offers, you must do what’s called the highest and best most likely. The seller will direct the listing agent of the property for everyone to put in their highest and best offer.  You don’t know how much you’re going to overpay for the home, but the rest assured, you will overpay for the home, and you will have to write a higher offer to purchase the home to beat out competitors. For example, let’s say $700,000 home gets bid up to $750,000. That’s an extra $350 a month of payment to you. Here are why these matters… let’s say you wanted to wait for a lower interest rate because everyone else had the same idea you’re spending an extra $350 a month for the house that you could’ve gotten for $700,000 with a higher rate and refinance the house anyway. The point is the lower interest rates in this situation due to the multiple offers is not giving you a lower monthly payment.

Fact #3

If you’re waiting to save up for a down payment and interest rates, come down, the situation is only going to become increasingly problematic. Here’s why- you don’t like the interest rate environment today and you don’t like the payment today. Understood when interest rates come down and housing prices start going up again because everyone else’s is cost of funds has also dropped. Housing prices will rise, when housing prices rise payments will still be higher, pushing your goal of homeownership further away, forcing you to save faster, maybe even double the rate at which are saving on a monthly basis right now, in order to keep up with market forces.

Fact #4

Your ability to negotiate the house is going to be reduced. Think about it for a moment why would they agree to a $10,000 price reduction for example for you to buy the house when they could simply just sell it to one of the other people you competed against?

Fact #5

Seller paid credit for closing costs may impact your ability to perform. Obtaining a seller credit for closing costs -it’s not going to happen or you’re going to have to really overpay for the purchase price to offset the credit for the closing costs and hope the house appraises. In other words, your ability to buy a home in a lower rate environment hangs on a thread if there’s multiple offers for the house.

Fact #7

You may have to waive or reduce contingency time frames.  You might have to waive a loan contingency, inspection contingency, or appraisal contingency for those specific elements of the purchase agreement.

How do you avoid all these things? You buy when others are not. You go against the grain, and you do the opposite of what everyone else is doing. Everyone else is on hold and drinking the doom and gloom Kool-Aid. You can do that too, of course, and then you’ll pay the price for it as mentioned with the six facts above.

Another alternative would be to talk to a quality lender keyword, being quality there and realtor, and have them walk you through present market conditions, and how they specifically relate to your bottom line, not just at the surface level, but specific your financial picture. That means getting options for if you buy a house today what does your payment if housing prices rise and what it does to the interest rate if housing prices rise, etc. these are all things that would be very good to know so you can make the most informed decision for you and your family.

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