The real estate market has been through a lot over the past couple of years. In 2020-2022 was a real estate boom with massive buyer demand, low inventory, and low-interest rates. The interest rates were as low as 2.65% in 2021; historic record lows. However since the end of 2022, interest rates started to rise.

With the rise in interest rates, although gradual, has impacted the way home buyers and sellers are determining their home purchases: with many home buyers deciding to pause their search or to leave the market all together in the hopes of the decrease in rates. While this may make sense to many people, there are some other factors that you may need to consider before you press that pause button. We’re going to look at how you can navigate your home purchase.

Why are Rates Rising?

Before we can seek solutions, we need to determine why the increase in rates post pandemic? What happened?….the answer is….inflation.

The nasty “I” word that has caused our cost of living to rise from the minute the word “pandemic” came from the Government’s mouths. Since March 2020, the world shut down with the spread of COVID-19. From the shelter in place orders, work/school from home, and the quest to gather and hoard rolls of toilet paper and food, prices increased all across the board from food to building supplies and continued to rise all the way to today.

You are probably seeing videos and tic-toks of people describing how people are supposed to live in today’s time with the cost of living being so high with wages not catching up – after the County was able to survive through the COVID years from 2020-2022; some people actually saved money, paid off debt, purchased homes, etc. Those years were pretty good financially….Or was it?

Another factor that comes to play is the Stimulus checks that was giving to the American citizens to help keep up with bills, feed their families, and support themselves when they were unable to work. With additional money coming into the market, people who were not able to purchase a home were suddenly able to purchase a home because interest rates were low and they had more cash to put down on their homes. The housing market became on fire over night. People were purchasing homes, trying to find spaces to better accomodate the “New Normal”. Our home became our offices, classrooms, gyms, restaurants, film studio, etc.

With people with more money to spend, the cost of goods and services were rising – thus…inflation. To help combat the rise in inflation and support economic growth in 2022, the Federal Reserves (the Fed) decided to gradually increase short term interest rates. When the Fed raises rates, it tends to have a ripple effect on longer-term interest rates, including mortgage. Meaning that it costs more money to borrow money today; while in 2020-2021, it was cheap to borrow money and more people were borrowing money because it was cheap. “Why use your cash when you can borrow someone elses?”

So What Happens if I Wait?

While I will always advocate for you to do what’s best for you. You may want to consider what happens if interest rates decrease. It will be a bloodbath. Because interest rates have slowed down the housing market with the amount of buyers in the market, its not as much competition. While back in 2020-2022 there were more buyers than houses for sale. Causing buyers to go over ask, waive contingencies, and/or cover appraisal gaps, etc, in multiple bids. Where sellers had to choose the best offer with the best terms. If interest rates were to decrease, there will be more buyers to enter the market because those who decided to go on the sidelines will re-enter the market causing an increase in pricing.

So what’s a person to do, when they want to purchase their home? It’s already bad enough that home prices are high and now interest rates are high? I can’t win?

Alas…you can!Here’s some tips to navigate today’s market;

1. Start Early: To allow time to shop for rates and to compare and contrast. This is where you want to find your local and trusted real estate professional and mortgage professional to help create a game plan. It’s never too early to start thinking of homeownership. You want to discuss your desires with your mortgage and real estate professionals so that they can help formulate a plan to get you can get ahead of the game so that when you’re ready, your ready! Whether you’re 2 years out to you need to buy today!
2. Improve your Credit Score: Credit has become a huge factor to deterine a buyer’s qualification for a mortgage loan. While FHA can loan as low as 580 credit score, many mortgage lenders require that you need to have a score from 620-660 to qualify for a loan and may be some additional requirements if you’re getting a grant to help you purchase the home. Every mortgage lender is different and require different things for their borrowers. Not everyone has perfect credit, most people have less than desired credit to qualify for a mortgage. While some people may be DIYers who want to help nurse their credit back to health, don’t be afraid to talk to a mortgage professional. A great mortgage professional will meet you where you are. They are there to help you get you to the point you need to be to qualify for a mortgage. Whether you need to work on some items such as credit repair/restoration, save more money, or work a bit longer on that job; they will help you develop a plan to make you qualified for a loan.
3. Consider Fixed-Rate Mortgages: Most people are familier with fix rate and prefer the fixed rate mortgages over Adjustable Rate. While fixed rate is desired, but what happens when interest rates are higher? An adjustable Rate Mortgage (ARM) can help reduce your interest during the first couple of years of ownership. How? Buy the rate down. Buyers can buy their rate down by Discount Points. This determines by the lender. In some cases, you can ask the seller to buy the rate down for the buyer. Many lenders have mortgage products called 2-1 buy down which means that your rate is reduced by 2% for the First Year and 1% in the 2nd Year. The buyer can always refinance when and if it makes sense.
4. Consult a Mortgage Professional: While this has been mentioned above; talk to your mortgage professional of the different rates, products, and strategies to help you determine the best terms of your loan. Ask your real estate professional to refer you to a trusted lender. You can always shop around to see who you may feel the most comfortable. Keep in mind that your real estate professional and your mortgage professional work together to help get you to the finished line.
5. Budget Wisely: To factor potential rate increases while you’re setting your budget. While shopping you can always ask your mortgage professional for an estimated buyer closing cost sheet to review the costs that it would take to purchase a property. Every property is different, with clearly different prices but also minute things such as taxes and where they are located geographically. Your real estate professional should provide you with an estimated closing cost sheet, however you will get a more accurate cost sheet from your lender who is more familiar with your finances.

While rising interest rates can be a concern, it shouldn’t deter you from pursuing your homeownership dreams and goals. By staying informed, being proactive, and working with your trusted real estate and mortgage professional, you can still find a home that fits your budget, meets your terms, and enjoy the benefits of homeownership.