Why NOW Could be the BEST Time to Buy a Home in Years?
Are you holding off buying a home because rates are up? There are many reasons waiting to buy could be a mistake and I would even venture to say that with the right guidance and tools, this could be the BEST time to buy in YEARS! Here’s why…
For the past several years we have been in an ultra-competitive seller’s market. For the 20+ years I have been selling real estate I have NEVER seen a market like the seller’s market we just went through. It was absolutely BRUTAL if you were a buyer during the past couple of years to say the least!
We all had to get creative—offers were made tens of thousands of dollars...even a hundred thousand dollars over list price. I’ve seen buyer’s offer to have sellers’ homes cleaned, pay for sellers’ movers, I even had a buyer offering to clean the seller’s CAR after their move!
So... just what happens when you pay tens of thousands of dollars over list price? If we are in an ultra-low interest rate market like we were in, and you plan to stay in your home it is ok—your payments are tolerable because the rates are low...However, when interest rates go back up and home prices level or dip and you need to sell you could be in a jam. When you sell, that home will need to appraise at THE CURRENT market value, not the market in which you purchased the home. This means that if you cannot appraise at the current market after prices have dropped, you may run the risk of losing that value through a low appraisal, thus losing everything you saved and more by overpaying for a home in a low interest rate time.
Now, let’s look at purchasing in the market we are currently in. Prices have leveled and some information is coming in that prices have dropped by as much as 20% in certain areas.
Gone are the days of multiple offers, massive over-list price offers, and BACK are things like ‘seller paid closing costs’ which can save you THOUSANDS in out-of-pocket expenses (up to 6% of the purchase price). Allowed home inspections and seller-paid-repairs.
That same home that was on the market at $650,000 last Spring would have sold for $700,000 now may sell for the list price of $650,000 or less BUT with some of those ‘seller concessions’ saving you TENS OF THOUSANDS OF DOLLARS.
Are you an FHA buyer that couldn’t get an offer accepted last year? Are you a Grant Recipient buyer that seemed to be passed over during multiple offers? You are now right back in the running! But what about interest rates you say? ‘Rates are up...It’s a bad time to buy’...Well...First of all current rates are around 6.5%-7%...NOT horrible in the historic sense but also higher than the 3-5% we have become accustomed to.
THIS IS WHEN WE REACH INTO OUR TOOLBOX AND FIGURE THIS OUT! One of the very best mortgage tools that has been around for years but not used recently on the market today is called a 2-1 buydown. This is a tremendously successful loan product we’ve revived from several years ago. It is not the ARM product of the EARLY 2000 market that contributed to the housing crash. Simply put, it is a loan program that allows the SELLER to prepay interest for you for the first 2 years of your loan.
We are in an unpredictable market. The Feds are raising rates for a specific reason...to slow inflation.
The notion is, once they have achieved their goal of slowing inflation, they will stop raising interest rates. What a 2-1 Buy down can do for you is allow you to finally get into a home at a lower home value with less competition, and then have your seller prepay a portion of your interest for you. For instance...the current rate is approximately 6.5%. A 2 year buy down would allow the Seller to pay 2% of that interest on your behalf for the first year, 1% of the interest for the second year and then if the interest rates have not dropped and you have not refinanced you are locked into today’s rate! It is a wonderful, not widely known secret weapon that will help you to capitalize on lower home prices, less competition AND a lower interest rate! If and when interest rates fall again you simply refinance and enjoy the benefits of a more affordable home AND low rates. If rates do not drop you are locked into the rate you initially locked for the remainder of your loan…no surprises!
I would love to tell you more—I am a huge advocate for home ownership and all of the benefits it has to offer.
If you have felt priced out of the market or like your offer would never be accepted, I would love to talk to you—there IS a solution!
*Please note that this is not a prediction of interest rates. Interest rates and mortgage products are subject to change without notice.
Tara Mehalovich, Broker
Minnesota Home Venture