What are some things buyers can consider to adapt to today’s interest rates?
- Shop around for the best rates. Not all banks are offering the exact same rates. Some are better than others, and with fewer mortgages being issued, there is more competition in this area.
- Improve your credit score, which could impact the rate. While bad credit is one thing, even those with good credit can elevate their scores with specific, targeted actions. There are consultants specialized in this.
- Lower your budget. Look at homes selling for under your budget ceiling to see if they may work.
- Focus on the monthly payments.... What are the HOA fees? Real estate taxes? Operational costs? Insurance? Sometimes a higher-priced property costs less to service financially than a lower-priced property.
- Seek out properties where the asking price may be more negotiable. Some sellers are more negotiable than others. Some have reduced prices. While most seek a windfall, others are being more pragmatic.
- Increase your down payment if you can. Are you getting 6% for your cash? That money offsetting a borrowing cost of 6% may be wiser.
- Timing markets is usually unreliable. When rates come down, you can always refinance, but chances are when that happens, home prices will go up as more buyers usually enter the markets.
- Adjust your living budgets: could you cut something from your overall living budget to add more money to service a mortgage?
- Place offers. You never know. Some sellers who have owned their homes for a long time don't have the same cost basis as those who bought in the past 3 years. Most people sell after 10 years of ownership: pricing in 2013 was a lot lower!
- Ask for owner financing: sellers with more equity could see value in doing this. Seller financing can be used to avoid taxes in some circumstances. For example, if the seller finances a portion of the purchase price and then structures the loan as an interest-only loan, he or she may be able to avoid capital gains tax on that portion of the sale.
- Take a closer look at fixer-uppers: most pay a huge premium for move-in/brand new. Yes, it's easier and quicker, but sometimes doing the work yourself creates value at time of purchase. That always has long-term value.
- Even in times of uncertainty, every month you pay rent is a month less of equity building and a lost tax deduction. Rents can come down, but over time are very closely tied to inflation. If inflation averages 2% over the next decade, a $4,000 rent payment today may be $4,875/ month 10 years from now.
