As many homebuyers know, interest rates reached historic lows in 2020 and 2021. With 30-year mortgage rates now hovering around 6.00%, many people are kicking themselves for not purchasing a home sooner. It’s important to remember though, that buying a home wasn’t all roses and rainbows a couple of years ago. While mortgage rates were indeed low, there were also unprecedented low levels of housing inventory, home prices shot up significantly, and competition among buyers was fierce. All of these factors made buying a home especially challenging, with many homebuyers even waiving contingencies in order to make their offers more competitive.
While some homebuyers are planning to “wait things out” until mortgage rates come down, it’s worth considering that there are some real, potential advantages to buying a home now.
Potential Benefits of Buying Now
- Lower Home Prices. As many homebuyers are aware, home prices have declined substantially from where they were in mid-2022. And, due to decreased interest from buyers, many homes are now actually selling below their listing price – something that was unheard of back in 2021.
- More Time to Purchase. With less people buying right now, homes are staying on the market longer than they were a year or two ago. While this isn’t great news for sellers, it’s advantageous to homebuyers for a few different reasons. First, it allows them time to secure the most affordable home financing available, put their own home on the market if necessary, and it gives them time to see other homes and ensure they’re making the right choice. After all, buying a home is one of the most expensive things most of us will ever do in our lifetimes!
- Less Chance of a Bidding War. During the height of the housing market boom, many buyers were making offers well over asking price. Others were putting in all-cash offers, which typically take less time to close and are thus attractive to sellers. For many buyers, this cut-throat competition made it virtually impossible to get an offer accepted. Making matters worse, many buyers tried to compete by waiving home inspections and some even made offers without even viewing the home in person! As you can guess, none of this was good for buyers. With the housing market having cooled down over the past few months, buyers luckily now have more control over the home buying process.
- More Likely to Get Concessions. With home sales in MA and RI trending downward, sellers are more apt to agree to seller concessions than they were a year ago. A concession is when the buyer asks the seller to cover expenses such as appraisal fees, attorney fees, home inspection costs, property taxes, closing costs, or title insurance expenses.
Your Mortgage Rate isn’t Set in Stone
At the end of the day, you shouldn’t base your decision on whether or not to buy a home on mortgage rates alone. After all, locking in a mortgage rate today doesn’t mean you’ll pay that same rate for 30 years. You can always refinance to a lower rate when mortgage rates come back down. At BankFive, we even have a limited-time offer called the Rate Switcher Mortgage which allows eligible buyers to close on their mortgage now and refinance later without having to pay a lender refinance fee.
Options to Help Lower Your Interest Rate
For some buyers, knowing that they can refinance down the road isn’t enough. After all, you have to be able to afford your monthly mortgage payment during the interim. The good news is that there are several options out there for buyers that could potentially help them lower their mortgage rates now.
- Mortgage Discount Points. Discount points are essentially fees that a homebuyer pays to their lender in return for a reduced rate on their mortgage. Purchasing points can be helpful for a buyer who has some money upfront and who would like to secure a lower monthly mortgage payment. In most cases, buying mortgage points is recommended only if you plan to stay in the home for a long period of time.
- 2/1 Buydown. A 2/1 buydown is a mortgage offer in which you get a lower interest rate for the first two years of your mortgage, before your agreed-upon, actual mortgage rate kicks in. Typically, the rate will be 2% lower during the first year, 1% lower during the second year, and will then settle in at the actual rate starting in the third year. BankFive currently has a mortgage buydown offer for eligible borrowers.
- Community-Focused Home Loans. There are several loan programs in MA and RI aimed at making homeownership more attainable. Many of these programs offer below-market interest rates which can be especially helpful in today’s market. Home loans from MassHousing and Rhode Island Housing typically offer below-market rates to eligible borrowers as well.
Ways to Offset High Mortgage Rates
Another option is to offset your mortgage rate with a larger down payment. The more money you pay upfront for your home purchase, the less money you’ll need to borrow from the bank, and the lower your monthly mortgage payments will be. There are several grants available to eligible first-time buyers that can help with down payments:
- RI Statewide Down Payment Assistance Grant – Eligible first-time homebuyers in Rhode Island can get up to $17,500 toward their down payment.
- FirstGenHomeRI – Eligible first-generation homebuyers from select RI cities can get up to $25,000 in down payment or closing cost assistance.
- MassHousing Down Payment Assistance – Eligible borrowers buying a home in select Massachusetts communities could receive up to $50,000 in down payment assistance.
While today’s mortgage rates can be discouraging to some buyers, there are many potential advantages to buying now. The key is to fully understand your current financial situation, and how much of a mortgage payment you can afford. Knowing which mortgage programs and offers are available is a critical first step. If you’re considering purchasing a home in MA or RI in 2023, don’t hesitate to reach out to our dedicated mortgage experts today. Start a conversation to see if buying now makes sense for you.