Things To Consider Before Beginning Your Home Search
Before beginning your home search, there are a few things to consider that will make your decision to buy a home and the process in doing so much easier! My goal for you after reading this article, is that you are better prepared for your home searching journey, and that you know the options that are available to you that will make your journey as smooth as possible. I will address interest rates of today and how they impact your decision to buy, creating a guide that will help you in making your home selection decisions and how keeping an open mind paired with having a good real estate agent to guide you through you home searching journey will create a larger selection of homes for you to consider, both in and under budget!
Rates of Interest
It's no secret that interest rates have changed quite a bit over the last year and many people are wondering if now is the right time to buy. Fluctuating interest rates are inevitable, and waiting for them to change could create a missed opportunity at finding your perfect house. The historical low interest rates seen between 2020 and 2022 quickly became the expectation for people looking to purchase a home. So it is understandable why people are hesitant to buy in todays market. The reality is, that interest rates that are being seen today are closer to the normal range of interest rates, and represent a healthier housing market. For those waiting to see if interest rates will dip back down to those historical lows, will be waiting for a very long time. In fact, there is a huge possibility that interest rates will never reach those lows again. However, this should not deter you from buying your dream home when you are financially able. There are many benefits to buying your home now, as opposed to waiting for the "perfect time" that may never come. Remember you have options to consider both now and later that provide opportunities for taking advantage of a lower interest rate both now and later!
One option that is available to you is during escrow. This option is called a rate buydown. For those of you who may not know what a rate buydown is, it is a way for a borrower to obtain a lower interest rate by paying discount points at closing. Discount points, also referred to as mortgage points or prepaid interest points, are a one-time fee paid upfront. In the case of discount points, the interest rate is lower for the loan term. In other words, your have the ability to pay a one-time fee during escrow that is essentially buying a lower interest rate. It is best to speak with your lender in regards to the best return on investment when considering this option. Also, keep in mind that this one-time fee can be negotiated with the seller. In an ideal situation, you are working with a motivated seller, and they will agree to paying half or all of this fee in order to complete the sell of their home.
Another option to consider is after escrow. This option is to refinance when rates have decreased in the future. Since you have made the decision to purchase your home based on being financially able to afford your monthly payments as they are with the current interest rate, this option is your secret weapon! To better understand the benefits of refinancing, lets consider the example below:
You get a 30-year mortgage for $200,000 with a 4% interest rate. Your monthly payment is $954.
You refinance your loan after 2 years to another 30-year mortgage and keep the same interest rate. Since you’ve been paying for 2 years, your loan balance is now $192,812. By having a longer term and extending it back to 30 years, your monthly payment is now $920.
Let’s say rates were low when you refinanced, so you also lowered your interest rate. Your new 30-year mortgage is $192,812 with a 3.5% interest rate. Now your monthly payment is $865.00.
In conclusion, buying now before interest rates raise to the next highest point gives you peace of mind knowing that you are in your dream home and locked in at an interest rate and monthly payment you can afford. Remembering your opportunities at having a decreased interest rate both now and later, therefor lowering your monthly payment, will help you in deciding if buying your home now is the best option for you!
Creating A Wants and Must Have List
Before beginning your home search, it's important to have a clear idea of what the perfect house looks like for you. In order to do this, I recommend creating two lists, the first list being your must-haves or non-negotiables. These are items that if not featured in or around the house would break the deal. The second list will be your wants. The items on your "wants list" are items that you would love to have featured in your home, but are not items that you can't live without. Because purchasing a home is possibly one of the biggest investments of your life, it's is easy to let your emotions cloud your judgement. Creating these lists will not only help when deciding on which home is perfect for you, but most importantly, will prevent you from passing up on what could be your dream home based on a superficial issue.
Keeping An Open Mind
In todays market, it is important and even beneficial to keep an open mind when it comes to what the "perfect house" looks like. As an interior designer, I always encourage my clients to try to see the potential of a home rather than what the home currently looks like. Choosing a home that has "good bones", an ideal layout and with no structural issues, but just needs a little love, will allow you to consider more options at various price points! For example, lets say your real estate agent finds a house that has exactly what you want in regards to layout, is in a great neighborhood and is under budget! However, the kitchen is outdated, there are popcorn ceilings and it doesn't have the open concept that you are looking for. All these things can be updated once the home is yours! With the money that you saved purchasing a house that needs a few modifications, the outdated kitchen can be updated, walls can be taken down and the popcorn on the ceilings can be removed! Remember, aesthetic issues should not deter you from considering a home. These issues can easily be addressed after you close escrow and without breaking the bank. Having a real estate agent that understands your wants and needs and is able to see a home for its full potential is so important. With only 10% of home buyers being able to envision a home after updates and personalizations are made, the chances of you unknowingly passing up your dream home are overwhelmingly high.
I hope that you have learned a few things after reading this article and feel better prepared to begin your home search. Remember, there isn't a universal "perfect time" to purchase a home. This decision is solely based on your financial readiness to invest in your dream home!