Let’s face it: buying a house with high interest rates isn’t the ideal situation to find yourself in. It’s one of the many reasons the National Association of Realtors predicted an increasing trend of “people staying put” in 2024. That being said, sometimes a move is inevitable. You may need to relocate for a job, for family reasons, or because you’re looking for a lower overall cost of living. In those cases, you likely can’t afford to wait for the interest rates to come back down (if they do at all in the near future—many experts predict rates will hold steady around 6.5% through the end of 2024).
With that in mind, here is everything you need to know about buying a house with high interest rates.
How Buying a House with High Interest Rates Impacts You
High interest rates can make buying a home more challenging, but understanding how these rates affect you as the buyer can help you navigate the process. First and foremost, you should understand that high interest rates usually lead to higher mortgage payments. This may limit your ability to afford other expenses or invest in home improvements; purchasing a move-in ready home can help minimize the consequences of that.
Higher interest rates might also influence the amount that lenders are willing to approve you for. It’s important to sit down with a real estate professional in order to find your ideal home that also fits your budget.
Tips on Buying a Home While Interest Rates are High
Shop Around for the Best Rate
Not all lenders offer the same rates. Shopping around so you can compare rates from different lenders is a great way to find the best deal for your circumstances. This could result in thousands of dollars saved over the life of the loan, giving you more financial flexibility.
Consider a Larger Down Payment
If you can afford it, a larger down payment will reduce the total amount that you will need to borrow. This in turn can lower your monthly payments and overall interest costs.
Another option is to pay an upfront fee, sometimes referred to as “discount points”, to lower your interest rate. This option also requires more cash at closing but is another good way to reduce your monthly payments and overall interest rate. The price of these points, and how much of a reduction you might see, depends on a number of factors including the lender and loan type.
Explore Different Loan Types
Another good strategy for buying a house with high interest rates is to explore the different types of loans that are available to you. For instance, be sure to consider the advantages and drawbacks of adjustable-rate mortgages (ARMs) vs fixed-rate mortgages.
As the names suggest, fixed-rate mortgages do not change and are a good option if you’re looking for some stability in your budget. ARMs, on the other hand, often offer a lower rate at first, with the caveat that the rate can jump up later on. However, if you’re planning to refinance or move before the rate changes, this can be beneficial.
Check Your Credit Score
This might sound basic, but it’s always worth noting that the better your credit score is, the lower your interest rates are likely to be. Paying off debt, avoiding new credit inquiries, and making timely payments are excellent ways to improve your credit score. A better credit score can significantly impact your ability to secure a mortgage and influence the terms of that mortgage, even in a market where the Federal Reserve has raised interest rates to curb inflation.
Look for First-Time Homebuyer Programs
Finally, if you’re a first-time home buyer, don’t overlook the possibility of programs that are designed to support you. Your real estate agent can help you explore local and state programs that offer lower rates, down payment assistance, or tax credits for first-time buyers.
The Long-Term Benefits of Buying a House Even With High Interest Rates
Even with higher rates, a home is still one of the best investments you can make. Owning your own home allows you to build equity over time, which can be a valuable asset in the future when you might need to offer leverage for further investments or emergencies.
It’s also important to keep in mind that mortgage interest is often tax-deductible, which can offset some of the higher costs. Talking with a real estate agent and a tax professional can help you better understand the nuances of this.
And finally, while the value of homes may fluctuate in the short-term depending on the economy, values consistently trend upwards over the long-term. Despite the higher interest rates of the current market, the potential long-term appreciation of your property can lead to significant financial gains.
CENTURY 21 Bolte Real Estate is Here to Support You Through the Home Buying Process
At CENTURY 21 Bolte Real Estate, we’re a team of real estate professionals who are passionate about helping our clients reach their real estate goals. Whether you’re looking to buy or sell, we’re here to help you navigate the current housing market. We have a long history of providing real estate services to our clients in North Central Ohio.
Are you looking to buy a home in our area and need help understanding interest rates? Get in touch with us today—we’re here to answer all your questions.
