Everyone knows the major challenges facing homeownership and affordability in a post-COVID world. Housing prices are high, rates are high, rent is high, insurance is high, the cost of renovation and repair is high. First-time homebuyers and relocators are frustrated and pushed to the sidelines like my high-school baseball career. Existing homeowners feel stuck and tied to a home that might not fit their life anymore. People are askingā¦ āWhat do we do!?ā
Here’s what weāre suggesting in a tough market:
- Know your options. The internet is ridden with teaser rates and half-working mortgage calculators that lead you to believe your payment will be X and your down payment Y. Speak to a licensed loan officer and go through the specifics of your goals and finances. Get a true range of payment and out-of-pocket expenses that includes homeownerās insurance, HOA dues, property taxes, closing costs, and more.
- Do not buy if it depletes your savings. Homeownership is full of joy and sometimes prosperity, except when the pipes under your home are invaded by roots like White Walkers at the Wall. Life can take unexpected turns, and the last thing you want is to be stressed about savings as repairs pop up.
- There are incredible affordability options out there. Iām a huge fan of a temporary buydown, commonly referred to as a 3-2-1 or 2-1 buydown. This is a fixed-rate mortgage at a standard market interest rate where the seller, lender, and/or real estate commission can help to pay for you to have a lower interest rate and payment for the first 3, 2, or 1 year of the loan. The parties to the transaction essentially āsubsidizeā your mortgage payment. Weāve moved into a buyerās market, and sellers are offering up plenty of incentive. Everything is negotiable and you can find great value here.
- Existing homeowners should consider a Home Equity Loan or HELOC. If you have a sizeable 1st mortgage at a really low interest rate, consider using a 2nd mortgage like a HEL or HELOC to consolidate higher-interest debt or renovate your home. The transaction costs and financing to renovate your existing home with equity are likely to be a cheaper option than moving and resetting your overall rate. Optionality for 2nd mortgages has increased drastically over the last few years as more and more lenders offer competitive options to a massive population that likely isnāt changing their 1st mortgage any time soon.
- Donāt knock the lower down payment options. Historically, I hear many people say that they want to put down 20% to avoid private mortgage insurance (PMI). PMI or MIP on FHA loans are a monthly fee that you pay within your payment that likely allowed you to put less than 20% down. In 2023, FHA mortgage insurance was reduced to the lowest level in 15 years. FHA loans often have better interest rates than Conventional loans as well. If Iām buying a $500,000 home, Iād personally rather pay ~$221 a month in MIP with $17,500 out of pocket for my down payment (3.5% minimum on FHA) than $100,000 out of pocket for 20% down on a Conventional loan with no PMI.
Being thoughtful and patient but ready to strike when others are sitting on the sideline can pay major dividends over time. Everyone is unique, and itās important to consider your options to make the best decision for you and your family.
Reach out to a trusted mortgage expert or visit the company Iām an owner of, Agave Home Loans.