If you have any interest in this topic at all, you already know what’s up—and it’s mortgage rates. But this shouldn't be the end of the conversation, and it would make this a very short article. Of course, the higher rates today makes monthly payments higher than recent years, and it also means inventory (the amount of homes on the market) may be lower in some areas. But, we're also seeing less competition, and more homes sitting on the market compared to recent years. So let's break it down. Based on these trends, we have a few takeaways and tips we’re keeping in mind. Here’s to all of us buying homes right now—we’ve got this. 🥂
Rates aren't the end-all-be-all. The market will always be shifting, so it's better to stay focused on you and what you can afford.
Programs like Lower's 2/1 Buydown and Free Refinancing for Life are here to help make buying a home now easier and cheaper.
Consult with your real estate agent to see if seller concessions are possible.
See what you qualify for. No-impact credit check. No commitment.
We’ll come right out and say it—when it comes to deciding to buy a house, rates don’t REALLY matter. (It’s a controversial take, but bear with us here.) Rate hikes and market shifts are always what the news highlights, but in focusing on only rates, we avoid the actual conversation—affordability. The two are, in fact, not mutual.
Focusing on whether we can afford a house allows us to see objectively, no matter the market. It’s about the individual, not the whole, and definitely not just about rates.
To test this theory, let’s take rates out of it. If we can’t afford the monthly payment of a home (including interest, taxes, insurance, etc.) it isn’t a good idea to buy a home whether rates are 0% or 20%. The same goes for the opposite, if we CAN sustainably afford the home and we want to move. In this scenario, the rate isn’t make-or-break, so it gives us options like refinancing when rates go lower or buying down points. That mental shift is really important to knowing whether now is the right time to buy.
So, if we’re not focusing on rates, what CAN we focus on? Deciding to buy a home can be broken down into two main buckets:
“What is my budget?” and “Can I find a home in that budget?”
“Do I want to move to a new home (or own my first home)?”
To walk through the financial part, you can get connected with a Lower advisor.
Collectively, if/when we decide buying a home is a good decision, then we can think about how to maximize our investment. And THAT’s when we should be talking about rates—in reference to ways to lower monthly costs after we’ve already decided it’s time to buy.
So, you’ve decided to buy a home and you want a lower rate and a lower payment. Once you know you qualify, there are a few different options that can help save you some dollars.
This is a holy grail option in higher-rate environments. It has a very technical sounding name, which may be why not many people know about it. But the 2/1 Buydown simply means you are lowering your rate at closing, and it will only impact the first two years of your mortgage.
For the first year, your rate will be 2% lower than the rate quoted on your loan documents. For the second year, it will be 1% lower, then it will resume to your quoted rate in year 3 and beyond. This option, however, doesn’t make qualifying for a mortgage any easier. You’ll still need to qualify for the payment when using the uneffected rate.
The source of the upfront payment needed at closing can come from any interested party other than yourself—your builder, lender, real estate agent or, most commonly, the seller.
If funded by the seller, you can think of it as an alternative to lowering the price of the house. For example, instead of dropping the sale price by $10,000, you can take that money and purchase a 2/1 buydown. Your monthly payment will be drastically lower for those first two years compared to if you were to buy the rate down over the length of the loan.
+ Can be used on any type of loan, including Conventional
+ Gives you the benefit of a lower initial rate without needing to sacrifice the type of loan product you use
+ Can be funded by the SELLER
+ When compared apples-to-apples with a reduction in sale price, the 2/1 buydown will lower the monthly payment significantly.
Question about the 2/1 Buydown? We’re here to help.
Much like the 2/1 Buydown funded by the seller, you are also able to use that seller credit at closing to buydown your rate. With seller-funded points, however, the lower rate will be permanent for the length of your loan.
One key item to remember when buying a home in a higher rate environment is the ability to refinance when/if rates drop. A good rule of thumb to follow is to refinance when you can lower your rate by at least 1%. Some recommend at least 2%. This will allow you to balance the overall cost to refinance with the savings you’ll see every month with a lower rate.
Here at Lower, we have Free Refinancing for Life, which takes away all the lender-based refinancing fees after you’ve bought or refinanced your home with Lower once.
There’s no doubt we’re in an interesting time for buying a homeRight now (late 2023, early 2024) is unique because competition has eased up from the 2020-2022 market, but rates have climbed much higher. There are a lot less people shopping for homes but also a lot less homes for people to buy.
“We’re not seeing anywhere near the competition we saw the last few years in Tennessee, where homes were being sold prior to listing, or with several above-asking, all-cash offers. Now, in 2023, some homes are still selling quickly, but others are hanging on for months” said a branch manager with the Lower family of companies. “It all depends on the local market, and buyers should be working closely with their real estate agent to understand.” She emphasized “headlines just don’t give a full picture of the current market.”
"Headlines just don’t give a full picture of the current market."
As a buyer in 2023/2024, you might have some wiggle room in asking for things like seller concessions, especially if the property has been on the market for a while. This can help offset the higher rates.
There may be less homes on the market in your area, but also less competition. Being flexible with your wants can increase your chances of getting you into a house and building equity sooner.
If you’re able to qualify for the loan, you may actually experience less competition to get an offer accepted than those buying 2020-2022.
Mortgage rates have risen, which means homes you could previously qualify for may be out of reach—just check with your loan advisor.
Buying a home when you already have one can make things a lot easier when it comes to things like qualifying and saving for a down payment—especially in this market. You’ve also already been through the homebuying process, so you have an idea of what to expect. Buying a home is also going to be significantly easier when you already have a home to leverage financially.
And then there’s the question “but what do I do with my current house?” Fantastic question. Let’s talk about it.
If you speak with your real estate agent and competition for homes is high in your area, you’ll want to keep your offer as simple and as beneficial to the seller as possible. Normally when you have a home to sell, you would list the sale of said home as a contingency to your purchase contract. That means if the sale of your home falls through, you won’t be held to the contract for the one you’re buying. It’s a great protection for you, but not great for sellers, and they may be more apt to accept an offer without contingencies.
That’s why we’ve added a unique financing option to “Buy Before You Sell.” This program allows you to buy your next home with the cash proceeds from your current home—before you sell it. This means you can close on your new home, move in, then we sell your home for you. No needing to vacate your home for showings or be rushed by a quick deadline to move.
Chat with your loan expert about the Lower “Buy Before You Sell” program. Just a few quick questions to get started.
So. We’ve done our research and are older and wiser now. We know to focus on our own financial situation rather than rates when deciding to buy a home. We learned about programs to help us lower our rate and payments like the 2/1 buydown and free refinancing.
While we want to ask for seller concessions to lower our monthly, we also want to make sure sellers have reason to choose our offer, and using Lower’s Buy Before You Sell program can make that happen.
In all, we’re ready to buy a home, now let’s go do it.
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