The Tools Available To Help You Win in High Rate Markets

If you’ve been in tune to the real estate market at ALL during 2023, you probably know how the story goes…

Rates are high. 📈 Inventory is low. 📉

And with this story, you might feel stuck on what move to make, whether you want to buy or sell.

If you want to buy, you might be wondering if you should wait until rates take a dip, so that your mortgage payment isn’t so high. 

If you want to sell, you might be wondering if you should wait until more buyers are on the market.

I can’t tell you what move to make, but I can provide you with resources, information and my honest thoughts to help you make your decision more confidently. 

Let’s start with interest rates since this tends to be the biggest concern in almost all of the conversations I’ve been having. 

I won’t dance around the fact that YES, interest rates are historically high. This has been true since the beginning of the year and as the months have gone by, they’ve continued to rise little by little.

My honest thoughts? I don’t see that changing anytime soon. But that doesn’t mean you have to sit back as a buyer and wait… and wait… and wait until something changes.

For some people, waiting might be the best choice and that’s fine! But don’t make that decision solely on interest rates. 

Rates are ONLY one factor of the home buying process and they just so happen to be the factor that are ever changing, unlike the other pieces that go into the process.

So, if you want to buy, but you’re worried that the high rate market is holding you back, I invite you to think again and look at all of the tools available to you!

4 Tools Available To Help You Win in High Rate Markets

• Mortgage Recasting

I’ve talked about mortgage recasting before and you can get the full 411 in this blog post, but essentially, mortgage recasting is a process that allows homeowners to modify the terms of their mortgage loan without refinancing.

With a mortgage recast, you make a large lump sum payment towards the principal balance of your mortgage, which leaves you with a lower monthly payment and a shorter loan term.

This option is commonly used with homeowners who have purchased a new home, but have yet to sell their previous home. Once they sell their previous property, they can use the funds of that sale to put toward their new mortgage with the recast option. 

This is also a desirable choice for those who unexpectedly receive a large amount of money, whether that be through a bonus at work or an inheritance, and they want to use that money for their mortgage. 

In today’s market, we are seeing more mortgage recasts due to the restructuring of conventional loan interest rates.

Since those who have a higher credit score and higher down payments can see a slight penalty, (I don’t make the rules 😅) people are looking for options to create a scenario that works in their favor and a mortgage recast is one way to do it!

Think of the mortgage recast as a way around the conventional loan restructuring - it just takes an extra step. 

• FHA Loans

Speaking of conventional loans being a little whacky right now, FHA (Federal Housing Administration) loans are another GREAT option that more and more people are using. 

FHA loans are a type of government-backed loans, meaning they are insured by a government agency, thus providing certain protections to lenders. This often plays in your favor as a borrower because lenders are then able to offer more favorable terms and lower interest rates.

Government-backed loans are designed to make homeownership more accessible and affordable for individuals who may face challenges in obtaining traditional financing, which make these loans very common for first time homeowners. 

There are a few popular government-backed loan options with FHA loans being one of them and they are most popular among first time homebuyers and borrowers with lower credit scores or limited down payment funds.

FHA loans typically have more flexible qualifications and require a down payment as low as 3.5% of the purchase price.

For other possible loan types, click here!

• VA Loans

VA (Department of Veteran Affairs) Loans are another popular government-backed loan that are available to eligible veterans, active-duty service members and surviving spouses.

These types of loans offer several advantages for buyers, including no down payment requirement, competitive interest rates, lower credit score requirements and the absence of private mortgage insurance (PMI). 

No down payment requirement allows you to be more flexible with your cash up front and the competitive interest rates allows you to save more in the long run!

As far as PMI, private mortgage insurance is insurance that protects lenders in case of a borrower default.

Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they can put down at least 20%, which can be very challenging for home buyers, so no PMI requirement with VA loans is a HUGE benefit!

For other possible loan types, click here!

• Seller-Paid Rate Buydown

This topic was HOT earlier this year and more people started utilizing it. Even though it’s not talked about as much anymore, it’s still an option for you!

This technique essentially allows you as a buyer to make a lower mortgage payment for the first 2 years of your loan.

So, let’s say the interest rate for the home you want to purchase is currently averaging around 7%.

If you opt for the Seller-Paid Rate Buydown, that rate will be reduced by 2% making your rate 5% for the first year.

The following year, you’ll see a 1% decrease from the original rate, making it 6%. And finally, in that third year, your rate will rise back to the original amount.

(Click here to see a full example!)

The type of rate buydown is funded by the SELLER, not you as a buyer, which means that you can purchase the home that you really want and buy yourself time for 2 years until you can refinance with a permanent fixed rate.

You might be wondering why any seller would go for this…

Well, there’s a benefit for them too!

A lot of buyers are currently playing the waiting game to see if interest rates or home prices are going to drop. As a seller, this potentially means that your house will sit  longer on the market. When this starts to happen, the first thing you likely think to do is reduce your home price.

INSTEAD of reducing the home price, you could agree to the Seller-Paid Rate Buydown and increase the chance of your home selling FASTER at list price - two of the things that are important to you during the selling process, right?!

When this is agreed on, as a seller, the buydown amount comes off your bottom dollar at closing.

As a buyer, this technique actually benefits you MORE than if you were to buy a home at a reduced price. 

So basically, it’s a win/win. 🏆

Ready To Start The Homebuying Process?

As you embark on the exciting journey of purchasing a home, understanding the different tools available to you is vital, especially in high rate markets, so you can make informed decisions that align with your financial goals!

After learning about the possibilities that are available to you, you may still have some questions and if so, that’s what we’re here for.

Connect HERE to ask your questions and receive guidance based on your specific scenario.

And if you’re ready to start the homebuying process, download the free Buyer’s Guide for a quick glance at what it takes to make homeownership happen!