Waiting for Interest Rates to Come Down?

The current 30-year fixed rate for buyers with good credit is 7.25%.  Back in 1971 the rate was 7.33%.  Like then, some buyers are saying they’re going to wait until rates come down.  For buyers that said that in 1971 they would have waited until 1993 (that’s 22 years) and they would have seen the value of a home increase by 400%.  It’s easy enough to see now what the correct decision should have been.

What to do?

The first thing buyers should do is work with a reputable lender to obtain a preapproval letter which will help determine just how much house they can afford.  The real concern is not the interest rate but what will the monthly Principal, Interest, Taxes and Insurance (PITI) payments be (and if it’s a condo what are the association fees?).  Once buyers know what PITI payment works for them, then they can use a real estate professional to search for homes that meet that criteria and price point that will have the appropriate PITI payments.

But what if the buyers can’t find that HGTV move-in ready home in the best neighborhood with the best schools and the perfect commute time to work?  Buyers have a couple of options:

1. Look for homes that need a little TLC and invest some sweat equity to make cosmetic changes to make the home exactly or as close as possible to the original search criteria.  There are renovation loans for both conventional and FHA/VA mortgage programs if the buyers need the help of professional contractors. 
2. Expand the geographical area of the search.  Of course, most buyers want the perfect location, but moving a little farther “out” from the desired area can often deliver a home that “checks most of the boxes”.
3. Buyers can buy a home that isn’t perfect in condition or location, but allows them to get a foot “in the real estate door” and then they can take advantage of the market as the property appreciates.  There’s no absolute guarantee that the property will appreciate, but history tends to be in favor of appreciation over the long haul.  Use that realized equity to purchase the perfect home in the perfect area when rates do come down.
4. Any of the above by itself or in combination can help buyers to own and take advantage of the tax benefits of home ownership and stop renting if that’s their current situation.

Hopefully, it won’t be another 22 years before rates come down, but buyers have been advised that property values may increase dramatically while they wait.  Reach out to me in the greater Chicagoland area for information and I’ll put buyers in touch with a trusted lender to secure preapproval so the home search process may begin.