How Do Rising Mortgage Rates Affect You As A First Time Home Buyer?
It has certainly been a crazy last couple of years - first we got hit with the pandemic, and that changed a lot of how Realtors worked with buyers! It was when I got introduced to Zoom, and zoom listing presentations and zoom showings to my buyers! It is where I learned where to buy hand sanitizer in bulk, where I learned about social distancing and where I learned that not all face masks are the same!
And for the real estate market the change has been exponential - home prices rising rapidly, multiple offers, showing slots of 15 minutes or less, walk and talk inspections, closings happening at the attorney's office in a car!
And, if you have been a first time home buyer in this market and have been successful in getting that house you wanted, then you deserve a big CONGRATULATIONS!
But for a lot of first time home buyers out there, it has been nothing short of major frustration! You may have made offers on 20 or more houses - only to lose out to a cash buyer! And now, having faced 2 years of bidding wars and losing out on house after house after house - now interest rates are rising rapidly! Historically, a rise in interest rates has helped to cool down a heated real estate market! But until the inventory levels get better, I think we are in for a continued heated up real estate market! You may be thinking that it is time to renew your lease and stay put for awhile! But that may or may not be the best option for you!
As you know, interest rates only a few short months ago was in the 3% range. And now a couple months later, it is over 5%!!! That means that the house you saw 2 months ago is now significantly higher! And if you are looking at homes that are priced under $300,000 with a 3% down payment means that your payment just jumped from $1,227 (at 3% interest rate, P&I per month) to $1,652 (at 5.5% interest rate, P&I per month)! That is over $400 per month increase just in the monthly principal and interest!
So what are your options at this point?
Reduce the price of the homes you will need to look at! If your top price point is $300,000, in the City of Richmond there are only 49 homes available for you to look at (as of April 21,2022). But knowing that there are bidding wars on most homes these days, you may need to reduce the price of the homes you look at so that you have enough room to bid up the price! You may need to look at homes that are priced lower so you have enough room to bid the price up! Chesterfield and Henrico are not much better - both counties have inventory levels of less than 100 homes available!
Compromise on what you want in the home you will be buying! I know that most people want what they want in a home - and sometimes, it is hard to decide what they are willing to give up on in their first home! It could be the location - it could be the number of bedrooms (maybe you want 4, but you are willing to take 3) - maybe it is a house that has great bones & is in a good location, but it needs updating!
Save up additional money! It may take a little while longer, but if you have only the down payment saved up but not enough to cover your closing costs, you may need to wait a little longer to get enough money to cover the closing costs! In the 2022 real estate market, you won't be able to find many sellers who are willing to pay your closing costs, especially if they have 10 other offers on the table!
Check into down payment assistance programs that may be available! If your income is at or below 80% of the area's median income, then this could help! But remember, not all lenders have all the down payment assistance programs. If you are talking to a lender and you qualify on the income, ask them if they offer grant money!
Although the historically low interest rates have now become a thing of the past, we don't know where interest rates are headed and if they will continue to go even higher than they are right now. I do think we are seeing a very very slight cooling down of the market, but until inventory levels increase in the Richmond area, I don't foresee that we have seen the end of this heated up market!
If you are thinking of buying your first home in the Richmond area, please feel free to contact me! I work with many first time home buyers and the first step is to sit down with a Realtor to come up with a game plan to help you get into that home! I have worked with many of the lenders who offer the down payment assistance programs and am happy to answer any questions you may have. Let me know how I can help!