4 Ways to Buy a Home When Prices Are High
While high prices and mortgage rates affect all potential homebuyers, those entering the market for the first time are finding the situation especially difficult. Stagnant wage growth coupled with inflation has increased the cost of living, so many are finding it difficult to save for a down payment and afford an expensive monthly housing bill. Being priced out of home ownership prevents people from building the kind of financial security that comes with owning a home.
But don’t worry. You can still buy.
When prices are high, competition is low. If you can make the finances work, you have a better chance of nabbing the home you want without having to compete with other buyers. Another benefit? Lower competition means homes are staying on the market longer. When that happens, home sellers are more willing to negotiate contract terms—and even their asking prices.
Ready to make your homeownership dream a reality? Here's how:
1. Put off major renovations and DIY what you can
If you had plans to roll your remodel costs into your mortgage, you might want to consider seeing where you can save money by either putting those repairs off or doing minor updates on your own. Are major renovations something you really need to do right away in your new home? If you delay them for a few years, you can build equity and eventually pay for those updates with a home equity loan or line of credit. Or better yet: do the renovations on your own without borrowing money at all!
Learning about home maintenance has many benefits! Getting confident about your own ability to make repairs might empower you to consider offering on a lower-priced home that needs a few updates you can do yourself!
2. Revisit your must-have list (for a lower sticker price)
Do you really need all four bedrooms or a home in a specific neighborhood? Could a less-updated or aesthetically pleasing home be something you’d consider? Opting to shop for a smaller house or one that meets your essential needs instead of one that has everything on your wish list could allow you to find a property that works for you at a more affordable price. By being open-minded about what you deem as “must-haves,” you will have more options to choose from, which increases your chances of finding something that’s available at a lower cost.
3. Increase your downpayment for a lower monthly payment
There are a few creative ways to increase your available cash so you can afford a larger downpayment. Here are some top options:
Hold off on buying to save up
To increase the amount you have available for a downpayment, consider putting off the purchase of a home until you are able to save up more money. You will need to determine your savings goal and make sure it’s realistic for your financial situation. Some tips for saving money: buy groceries in bulk to reduce the impact of inflation on your budget, find ways to spend less on gas by driving less and doing errands on bike or on foot, and reduce expenditures on non-necessary purchases like eating out or updating your wardrobe. A side hustle is also a great way to build up your savings. Driving for a rideshare company, housesitting, or dog-walking are all easy sources of part-time income.
Do you know anyone who might contribute a gift to your downpayment fund? If so, gift money is a great way to increase your downpayment. It does require careful consideration and planning since gifts from other people must meet certain criteria before being accepted as part of an official loan application process. You’ll need documentation proving the funds’ source and that it’s actually a gift (as opposed to a loan), as well as proof of your own income.
It’s best practice to consult with an experienced lender prior to accepting such offers so that all rules governing these types of transactions are followed.
4. Buy now and refinance later (if you can)
Buying a home while mortgage rates are high and then refinancing later when mortgage rates drop is a smart move because it locks in the current rate. By doing this, you can avoid paying higher interest if interest rates go even higher, and you still get the benefit of the lower rate after you refinance. Additionally, by locking in the current rate, you have more time to build equity in your home before refinancing.
Opting to buy now also helps you take advantage of the reduced competition. If you wait until mortgage rates drop, you’ll be competing with other buyers which might mean you’ll end up contending with competing offers and potentially higher prices.
Which strategy is right for you?
If you’re not sure about the best path forward or want to discuss your specific needs, our team is here for you. Our team of experienced real estate agents is available to assist you with any questions and guide you through the home-buying process.