The last few years have been tough for people looking to buy their dream homes. A shortage of available houses has led to intense competition, favoring cash buyers and requiring higher down payments.
First-time buyers face challenges as they navigate market pressures while trying to find homes that fit their budgets. Rising interest rates and high treasury yields have pushed mortgage rates to their highest levels in 20 years.
These elevated rates reduce what buyers can afford and increase monthly payments, creating uncertainty for those hesitant to make long-term commitments.
Ralph McLaughlin, a senior economist at Realtor.com, shared insights on how buyers can still locate homes within their financial reach, even with high-interest rates.
Although high rates can be discouraging, especially for first-time buyers, consumers can be more empowered in their search for competitive mortgage rates. Rates will eventually decrease, so a smart strategy is to purchase a home within budget and plan to refinance later when rates go down.
There are various options available now to secure a better mortgage rate. McLaughlin advises buyers to explore different mortgage terms and consider adjustable-rate options.
He explains that 15-year mortgages often come with lower rates, sometimes 1 to 1.5 percentage points lower than 30-year mortgages. Not only do these mortgages allow buyers to pay off their loans faster, but the monthly payments aren’t double what they would be for a 30-year loan, typically rising only 50% to 60%.
Adjustable-rate mortgages can also offer lower payments, though buyers should consider their risks. McLaughlin notes that these rates can be less than both 30-year and 15-year rates, but they may not adjust for five to seven years. If rates drop significantly during that period, refinancing could become necessary.
Another option is a buydown credit, which is not frequently used. This strategy can help buyers secure a better price, especially if the seller wants to finalize the sale quickly. The seller can cover these credits, reducing the buyer’s mortgage in the early years.
McLaughlin emphasizes that buyers can negotiate with sellers for a buydown credit. This is common, especially when sellers are eager to sell, making it a viable option for reducing mortgage rates.
